The Denial is in the Details: Description of the Premises Defines Coverage

Commercial property issues lead to surprisingly few reported opinions. While they may not result in opinions, many disputes arise over policy interpretation, stemming from the description of the insured premises.

Under the ISO Building and Personal Property Coverage Form, many of the coverages and extensions are defined in relation to the insured premises. So, any inaccuracy can lead to unintended expansions or omissions in coverage. The relationship between the described premises and coverage for business personal property was the subject of a recent Texas case. In Evergreen Nat’l Indem. Co. v. Tan-It-All, Inc., 111 S.W.3d 669 (Tex. App.—Austin 2003, no pet.), the court turned its attention to whether “covered property” included business personal property within 100 feet of any portion of a shopping center complex, where the insured leased only a single suite as its business premises. The trial court found the policy was ambiguous and, construing against the insurer, found coverage and awarded extracontractual damages. The appellate court, however, agreed with the insurer that there was no coverage, reversing the award of contract damages, attorney’s fees, and penalties under the Prompt Payment of Claims Statute, Texas Insurance Code, art. 21.55.

The loss arose when tanning equipment was stolen from the insured’s truck parked in the lot outside a shopping center in Austin. The insured operated a tanning salon in a suite at the shopping center. The truck was parked 280 feet from the front entrance of the insured’s suite, but within 100 feet of the outside perimeter of the shopping center. The insurer denied coverage, finding the property was not within the coverage area at the time of the theft. The insured sued for breach of contract, as well as violations of the Texas Deceptive Trade Practices Act (DTPA), Article 21.21 of the Texas Insurance Code, and penalties under 21.55 of the Texas Insurance Code. The insured ultimately waived its DTPA and 21.21 claims, but was granted judgment on the contract and 21.55 claims.

The policy was an ISO Building and Personal Property Coverage Form and provided, in part, that “we will pay for direct physical loss of or damage to covered property at the premises described in the declarations caused by or resulting from any covered cause or loss.” “Covered property” was defined in part as “your business personal property,” in turn defined to include property located in or on the building described in the declarations or in the open (or in a vehicle) within 100 feet of the described premises, …” The types of property included within “your business personal property” included furniture, equipment and other personal property owned by the insured and used in its business.

The description of the premises included in the declarations listed four business locations, including the suite at the shopping center in question. The description described the suite both by the address of the shopping center and the suite number. Accordingly, the insurer contended that business personal property was covered only if it was located within 100 feet of the actual suite. The insured, however, contended that business personal property within 100 feet of any portion of the shopping center, the address of which was included in the declarations, was covered. The lease, which was included in the summary judgment evidence, gave the insured, as a tenant, rights regarding common areas of the shopping center, including the parking lot, and included an assessment for cost of maintaining the common areas. In addition, the parking area designated for the insured was located more than 100 feet from its storefront. The right to use the common areas, however, was only a non-exclusive right in license, as the landlord retained management and control.

The trial court found the policy was ambiguous because the definition and identification of the insured premises allowed for more than one interpretation. On appeal, the court concluded that the policy was not susceptible to more than one reasonable meaning. The court also noted that the doctrine of contra proferentem—construction against the drafter of a contract—was a device of “last resort” employed by courts when construing ambiguous contractual provisions, to be used only when other methods of interpretation and construction proved unsatisfactory. In the context of the policy at issue, the court concluded that there was no ambiguity, as the suite was contained within the description of the insured premises. The court also found any other construction would be unreasonable, as it could include any person in the entire shopping center or the parking lot. Giving the words used in the description their “plain, ordinary and generally accepted meaning,” the court concluded that only property within 100 feet of the insured’s suite would be covered.

Having reversed the coverage determination, the court also reversed the lower court’s judgment as to attorney’s fees and penalties under 21.55.

Small differences, big impact
The Tan-It-All case, while perhaps not earth-shattering legal precedent, does emphasize the point that small differences in policy language can lead to significant differences in policy coverage. “Business personal property” is only one area of coverage impacted by the description of the building or premises. Disputes also arise as to undescribed structures or outbuildings that may not fall within other extensions of coverage or categories of covered property. The description of insured premises should be accurate and specific, to make sure that the insured obtains the desired coverage, and the insurer provides only the coverage for which a premium is paid. Any unintended expansion or reduction of coverage, because the property is not accurately described, typically leaves the agent caught in the middle, facing accusations from either the insured or the insurer. Careful review of applications can minimize confusion, and later attempts to “re-write” coverage in the face of an unexpected loss.

Beth D. Bradley is a partner in the Dallas office of Thompson, Coe, Cousins & Irons LLP. A member of the Insurance Litigation and Coverage Section, she leads the firm’s coverage practice. She has represented agents in disputes with policyholders and insurers and routinely represents insurers in evaluating and litigating coverage issues.

Topics Lawsuits Carriers Texas Property