Today I received an email directed to a list of coverage nerds from Tim Wahl, CIC, a Missouri agent. The email included a link to this news story:
“A SWAT Team Tore Down This Woman’s Home and Left Her With a $50,000 Bill”
In this case, the property owner not only suffered direct damage, but as a result of the shootout (especially the suicide), she experienced a loss in the form of the diminished market value of the home.
This incident reminded me of a claim some years ago where bank robbers barricaded themselves in a small downtown grocery store as the police surrounded them. Long story short, the store suffered significant damage from ammunition rounds and tear gas. The claim was denied by the insurance company, citing this exclusion:
Government Action
Seizure or destruction of property by order of governmental authority. But we will pay for loss or damage caused by or resulting from acts of destruction ordered by governmental authority and taken at the time of a fire to prevent its spread, if the fire would be covered under this Coverage Part.
In this case, the police were not liable either under a governmental immunity statute. Under these laws, recovery from a governmental authority may be minor or nonexistent. These incidents are not common, but they are also not rare.
We have seen the kind of damage to property that can occur from active shooter episodes in recent years. While a relatively minor claim, we saw a homeowner’s boat riddled with bullet holes when one of the Boston Marathon bombers was cornered in the boat.
Historically, this type of exclusion exists to preclude coverage for government-mandated seizure or destruction of condemned property as a public safety hazard or RICO seizures of property. It is understandable and socially desirable for insurers to deny claims for property damage arising from criminal acts of the insured. But for situations like this, innocent insureds have suffered fortuitous losses.
A similar exclusion can be found in auto policies. For example, the ISO personal auto policy excludes:
A total loss to “your covered auto” or any “non-owned auto” due to destruction or confiscation by governmental or civil authorities.
This Exclusion (6.) does not apply to the interested of Loss Payees in “your covered auto”.
I’m personally aware of two claims where vehicles were stolen and later used in the commission of a felony. In one case, law enforcement impounded the vehicle for over a year while the case was tried. The innocent insured was denied compensation by both law enforcement and the insurance company. If the auto was stolen, the insured would have been entitled to compensation…from the standpoint of the insured, confiscation by the police is just as fortuitous of a loss as theft by a criminal.
As you can see, in the exclusion above, an exception is made for an innocent loss payee. So, why not an exception for innocent insureds? If and when the vehicle is released, the insured could perhaps have the option of keeping the monetary settlement or returning it to the insurer in exchange for the vehicle.
What do you think? Feel free to Comment below.
Bill Wilson
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In criminal litigation, this could mean the difference in obtaining a conviction or not. If your alleged victim is not willing to participate and testify, because they aren’t getting help with the real-life impacts, then many cases won’t be able to proceed and can end up being dismissed.
A very good suggestion. Many years ago I had an insured’s vehicle that was “recovered” in a sting operation at a body shop that was run by the police as a chop shop. Our insured was a legitimate theft victim and was in no way involved in disposing of the vehicle. IIRC, our SIU was informed by an NICB investigator. We paid the total loss and waited quite a while to get the salvage vehicle. It was only under the threat of filing a “replevin” action that got the DA’s office to release it. I had learned about replevin in a Claim Law Course, I believe, and our counsel was pretty excited about being involved with an interesting/novel issue.
It would be nice to not have to get lawyers involved in situations like this.
Agreed! Unfortunately, “would you please give us our properly back so we can sell the salvage” was falling on deaf ears.
Bill – I very much agree with your viewpoint. Coverage should not exclude coverage for an innocent policyholder that suffers an accidental loss to its property
I don’t think it’s an extraordinarily common occurrence, but it’s a big deal to the person who feels victimized all over again. And, if it’s not that common, why not do the right thing and cover it. I’m guessing the impact on loss experience and rates would be nil.
As usual, you’ve raised some interesting points for discussion. In the scenarios you depicted in your article, the insured was a victim in more ways than one. Most would argue this is not “fair” and something should be done.
This issue appears as a topic for the Mid America Insurance Conference to discuss in search of fairness and getting something done, especially as Tim sits on the agents panel.
I remember that the auto theft issue was a MATC agenda item but I believed it was dropped since we only had one example of this happening. I’m sure there are many others but this is the only one I had personal knowledge of. Has it been reinstated as an agenda item? If so, perhaps it should also be added to the HO and CP lines since this type of exclusion exists in many property forms.