View this article online: https://www.insurancejournal.com/magazines/mag-features/2021/08/02/625042.htm
A question that often arises in homeowners insurance is whether a structure is insured under Coverage A – Dwelling or under Coverage B – Other Structures. The answer can impact both the limit and valuation method that applies. With regard to Coverage B, according to ISO’s current HO 00 03 form, “We cover other structures on the ‘residence premises’ set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line, or similar connection.”
Most Coverage B structures such as mailboxes, BBQ pits, light poles, etc., are separated from the dwelling by clear space. A detached garage building connected to the dwelling only by an electrical line is Coverage B, but if it’s connected by something more substantial, such as a covered breezeway, it’s Coverage A. That distinction is important when determining the Coverage A limit in order to avoid a potential underinsurance penalty.
For other structures, the classification can be more difficult. For example, is an inground swimming pool Coverage A or B? The answer is — it depends. How is it connected to the dwelling, if at all? Just by a water line? By pavement connected to the foundation of the dwelling or a wood deck affixed to an exterior wall? What about a detached HVAC unit that is connected to the dwelling by not only a utility line, but also by a concrete pad and galvanized ductwork?
And, for the focus of this article, what about a fence? We know that, under the aforementioned ISO form, a structure like a detached garage connected to a dwelling by a fence falls under Coverage B. But what if the structure connected to the dwelling by a fence is the fence itself?
In Nassar v. Liberty Mutual Fire Insurance Co., the Supreme Court of Texas ruled that a fence attached to a dwelling is part of the dwelling and, therefore, Coverage A. The court relied on the language defining Coverage A which applies to the dwelling “… including structures attached to the dwelling.” These structures may include shutters, awnings, TV antennae, solar panels, satellite dishes, etc. And, according to the court, fences. So, at least in Texas (and perhaps other states) under comparable facts and circumstances, a fence attached to a dwelling is Coverage A when a precedent-setting court case says so.
But what if there is no governing case law? For over 20 years, I belonged to an informal five-person group of insurance coverage nerds, calling ourselves the “G5,” who debated issues like this on virtually a daily basis. So, I presented this coverage dilemma to the group and the vote was two votes for Coverage A, two votes for Coverage B, and one vote for the premise that both might apply under varying facts and circumstances.
For example, there is a free-standing wooden privacy fence between my residence and my next door neighbor’s premises. Given that it is separated by clear space, it would be a Coverage B structure, depending on whose “residence premises” it is located on. Let’s say the fence starts one inch from my house and to stabilize it, I affix it in some way to my home. Is it now Coverage A?
What if the fence extends onto my neighbor’s “residence premises”? Is part of the fence Coverage A on my policy and the part on their premises Coverage B on my neighbor’s policy? What if the wooden fence is on their premises, attached to their house, then extends 100 feet where it connects to a separate ornamental wrought iron fence that extends around the rest of their property. Is the entire fencing part of their Coverage A, or could one argue that the wooden fence attached to the dwelling is Coverage A, but the very expensive iron fencing is a separate structure “connected to the dwelling by only a fence”?
Given that five so-called insurance coverage experts couldn’t agree, one view might be that coverage is therefore ambiguous and, as a result, a Coverage A vs. B claim should be adjusted in favor of the insured. But “should be” isn’t good enough. The best course of action is to attempt to resolve potential coverage disputes before they arise by addressing all of the questions posed thus far with the underwriter and, if necessary, claims department of the insurer.
This may seem like an unimportant issue, but fencing can be expensive. In the Texas case cited above, there was 4,000 linear feet of fencing. Having a friend that is an upscale homebuilder, I’m personally aware of a couple of homes that have $60,000 and $150,000, respectively, in fencing. Since Coverage B is typically only 10% of Coverage A, limits can be important. It’s not inconceivable that a rural property might have fencing worth more than the main residence. While Coverage B can be increased by endorsement, it’s important to first know whether a structure is Coverage A or B and then take appropriate action as to limits.
In its commercial property program, ISO has an endorsement that allows structures to be declared to be building coverage. ISO, to the best of my knowledge, has no such endorsement in its homeowners program, though an insurer might have a proprietary form. Perhaps the best solution is to establish via written agreement with the underwriter as to whether a fence or part of a fence falls under Coverage A or B.
Finally, the assignment to Coverage A or B may govern valuation. Under the ISO form, structures that are not buildings are valued on an actual cash value (ACV) basis. If attached to a dwelling and part of Coverage A, awnings, outdoor antennas, and outdoor equipment, for example, are still valued on an ACV basis, though the language is silent with regard to fences attached to buildings.
ISO has an endorsement, the HO 04 43, which extends replacement cost to certain nonbuilding structures, but limits this extension to fences composed of metal, fiberglass, or plastic/resin materials such as polyvinylcholoride (PVC).
Again, the best course of action is to identify all structures and reach agreement with the insurer as to coverage and value prior to loss. P.S. If this article doesn’t scare you enough about Coverage B issues, go back and read my June 7, 2021, column regarding boat docks!