Two of my pet peeves involve certain types of coverage questions that I’ve received over the years. The first one begins with something like, “Does a [insert type of policy here] cover …?” The key word here is “a.” Does “a” homeowners policy cover …? Does “a” CGL policy cover …? You can’t definitively answer coverage questions without knowing precisely what policy is the subject of the question.
The second pet peeve is a coverage question conditioned on “I’ve always heard that …” For example, “I’ve always heard that the ‘rule of thumb’ for notice for nonrenewal [no policy identified] is ‘X’ days.” This brings me to the point of this month’s column.
In my book, “When Words Collide: Resolving Insurance Coverage and Claims Disputes,” I share an experience of an agent asking if liquor stores needed liquor liability coverage. Given that the agent was the agency’s commercial lines manager and held a highly regarded professional designation, I assumed I didn’t understand the question. But I was wrong. The agent advised, “I was always told that unless you were in the business of selling liquor for consumption on your premises, you did not need to purchase liquor liability coverage.”
Apparently, this was the understanding of everyone in the agency, an agency that insured several liquor stores and other businesses that sold alcohol for consumption away from premises. I had to wonder if, while obtaining that professional designation, the agent dozed off during the instructor’s discussion of the CGL liquor liability exclusion.
I refer to these types of conditioned beliefs as “Knowledge by Folklore.”
Insurance professionals should not generalize about coverage or apply “rules of thumb” to coverage issues. Words matter, specifically the words in an insurance contract. And there are rules of construction and interpretation that must be followed. This is where the “RTFP! Doctrine” comes in. If you don’t know what I mean by “RTFP,” email me and I’ll enlighten you or Google “RTFP doctrine” and the answer will be at or near the top of the search results.
Folklore Is Not Fact
To determine coverage under a policy, you have to review the specific contract language of the policy in question.
For example, we know that, with a few minor exceptions such as valet parking, there is absolutely no liability coverage for the use of an auto in a CGL policy. That’s folklore.
In my October 2021 column, I wrote about a church that had CGL coverage for claims arising from a church member who was transporting church attendees in his auto. That’s a fact. And that fact was conditioned on the specific language of that CGL policy and the facts and circumstances of the claim.
Consider this actual claim. A contractor was building a detached garage at a home. He had completed the job other than a couple of hours of corrective work that he was going to finish the next morning. Just before he left the premises, he negligently discarded a cigarette, which caused a fire that destroyed the garage. He turned the claim in on his CGL policy and it was denied by the adjuster who cited three exclusions in the reservation of rights letter.
The first exclusion applied to that particular part of real property “on which” operations were being performed. The contractor wasn’t performing any operations. He was smoking a cigarette. The second exclusion applied to that particular part of any (real or personal) property that was damaged because “your work” was incorrectly performed “on it.” The contractor wasn’t engaged in the work product. He was smoking a cigarette. The third exclusion also applied to damage to “your work” if such damage “arises out of” the work. Again, this was not a workmanship-based claim for which these exclusions were designed, but rather a simple case of negligence.
While one may generalize that CGL policies usually don’t cover damage to your own work, that’s not absolutely true. It’s only true when the damage arises out of the work itself. That truth is revealed simply by reading the insurance contract language within the context of the facts and circumstances of the claim. Facts, not folklore, matter.
In another claim situation, a truck mounted crane was being used to remove a tree from a premises, but the tree accidentally damaged a building on the premises. The claim was turned in under a CGL policy which, if we were generalizing about coverage, covered the use of “mobile equipment” but not autos. In fact, the definition of “mobile equipment” said that such equipment does not include vehicles subject to motor vehicle insurance laws. The vehicle in question was, in fact, subject to motor vehicles laws. So, the adjuster immediately presumed that, if the vehicle is not mobile equipment, it must be an auto and, therefore, subject to the auto exclusion.
The problem is, the adjuster did not read the auto exclusion. That exclusion made an exception for the operation of machinery or equipment that is attached to a vehicle that would be “mobile equipment” if not subject to a motor vehicle insurance law.
That was exactly the case here. The crane-mounted vehicle met the definition of “mobile equipment” except for the provision in the definition that expanded the definition to include vehicles subject to motor vehicle insurance laws. That only appeared to throw the vehicle into the auto exclusion until the exclusion was actually read word for word. When the definition and exclusion were read in context, the vehicle was indeed an auto and excluded while being driven down the street. However, during the “operation of machinery or equipment that is attached to, or part of” that vehicle, any resulting loss or damage was covered by the policy.
Forms and Facts. Logic and Language. That’s how you determine coverage, not by folklore and generalization. And, as you probably gathered from the crane claim above, it often isn’t easy. Have you hugged your adjusters today?
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