Tuesday, November 8, 2011

Homeowner Insurance Coverage Characteristics - Exclusion Coverages

Homeowner Insurance Coverage Characteristics

As previously noted, homeowners policies contain exclusions within the basic policy form. It is, however, necessary to review a homeowners policy's endorsements in order to determine whether any of the exclusions contained in the basic policy form have been modified or any new exclusions have been added to further restrict coverage. Often, when an exclusion contained in the basic policy form has been modified by an endorsement, it can be difficult to figure out what is or is not covered.

Before discussing the particular exclusions, a review of the language that begins the exclusions section needs to be discussed. The ISO HO 3 policy first states the broad all-risk insuring agreement and then begins its prefatory statement with respect to the exclusions. This language states the following.

  • We do not insure against risk of direct physical loss to property described in Coverages A and B.
  • We do not insure, however, for loss:
    • a. Excluded under Section 1 - Exclusions.

This introductory phrase refers the reader to the enumerated exclusions at Section 1, which comprise twelve categories of exclusions, and which have their own introductory language that is of great significant. This group of exclusions is discussed first here. Homeowner Insurance Coverage Characteristics
The introductory language that precedes the exclusions listed tn Section 1 - Exclusions, states:

We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the Ioss event results in widespread damage or affects a substantial area.

The problem this language attempts to address is that of multiple causes of loss, in which some causes are covered causes of loss and others are not. This is referred to in insurance parlance as multiple causation or concurrent causation. The language just quoted states that if any excluded cause of loss is involved in a given loss, no coverage exists.
Despite the existence of this type of policy language - often referred to as anticoncurrent causation language-coverage disputes continue to arise in the multiple or concurrent causation context. Courts in the United Stares have taken a variety of approaches to the issue of multiple causation. The efficient proximate cause standard is by far the approach taken in the majority of jurisdictions in the United States.

This efficient proximate causation analysis seeks to discern what the predominant cause of loss is. It may not necessarily be the first cause in the sequence of events leading to the loss, although looking at the triggering cause of loss is frequently a useful analysis. Also, the efficient proximate cause of loss may well not be the immediate cause of loss (the last to occur), although again, that is something that needs to be considered in reaching a reasoned conclusion as to what, in fact, is the predominating cause of loss.

Under this efficient proximate cause of loss analysis, if the predominant cause of loss is covered, the loss is covered. The converse is true as well. If the predominant cause of loss is an excluded peril, no coverage exists. Often, the result of this analysis may be that there are actually multiple losses, each of which requires its own efficient proximate cause analysis.

Questions arising from the issue of the enforceability anticoncurrent causation language are likely to remain the subject of dispute between insurers and policyholders for the foreseeable future. The exclusions of the ISO HO 3 homeowners policy appear in the following order in the policy.  

Ordinance Or Law
This exclusion precludes coverage for three categories of loss. First, it applies to loss from enforcement of ordinances or laws requiring or regulating the construction, demolition, remodeling, renovation, or repair of property, including removal of resulting debris. Now, I know this is confusing - we just went through similar language in the discussion of the additional coverages. Homeowner Insurance Coverage Characteristics

Well, the statement of this exclusion is followed by an exception for that amount of coverage that is provided for such losses in the additional coverages parallel section of the policy. Why would the drafter of a policy set things up this way? It is done to assure that when there is a limited amount of coverage afforded for a particular risk, it is made clear that such limited coverage as may be available for that risk is all the coverage that applies to the loss.

Further, the final paragraph of the ordinance or law exclusion states that the ordinance or law exclusion applies whether or not the property has been physically damaged. The additional coverage "ordinance or law" coverage exists when there has been a covered physical loss to at least part of the insured premises. Governmental bodies also enact ordinances or laws affecting property owners, the enforcement of which is not dependent on the occurrence of a covered loss. For example, there are commonly ordinances that require minimum set-backs of structures from streets, sidewalks, or adjoining buildings, If your house is in violation of the set-back requirement and you are ordered to remove that portion, you will not be covered. That is why that exclusion is there, and why it has been written to interact with the limited ordinance or law coverage afforded under the additional coverage section.
Second, no coverage exists for the operation of ordinances or laws that result in the loss of value to property. This can occur when areas around your property are rezoned, resulting in the value of your property decreasing, (Nobody wants the park at the end of the block turned into a cement factory.) An economic loss in the absence of direct physical loss is not the intended subject of the type of policy in question and no coverage exists for this loss of value.

Third, the ordinance or law exclusion precludes coverage for loss arising from laws addressing environmental pollution issues. You do not have to have caused any environmental pollution to become a defendant in a pollution clean up action. Once you are in the chain of title of a contaminated property, you are potentially on the hook under federal and state environmental pollution laws for the cost of remediation (cleaning up) of those pollutants. Your homeowners insurer provides no coverage for the costs of remediating pollution on yore property, whether you are the person who caused the pollution or not.

Next post, we'll talk about natural elements damaging our properties. If you want to know more, you can get  Homeowner Insurance Coverage Characteristics right away.

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