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Last Post 02/16/2008 3:00 PM by  okclarryd
feelings of attachment
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Leland
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02/11/2008 8:57 PM

    After a big storm happens you roll up on the loss and discover a destroyed garage. It doesn't appear to be attached to the dwelling. The dwelling coverage is $300,000 so the garage is covered for only $30,000.00 based on your initial assesment.

    The insured walks up and explains that the garage actually was attached.

    The night before the storm he was talking to the neighbor, who is the contractor who remodeled the garage. The contractor told him with all the custom stereo equipment, built in plasma TV, wet bar, etc. that the garage wasn't properly insured as a detached structure and he better do something about it quick. The replacement cost of the garage is probably $60,000.00. The insured called his agent, who told him the contractor was right, the garage needed to be attached to be covered for more than $30,000.00  The insured and the contractor decided to take about 20 boards and overlap them onto the two roofs and nail them in. Then they took a photo, which the insured shows you. When the storm hit it all blew away, although some of the boards in the photo can still be seen. They even painted the boards to match the color of the roof shingles.

    What would you do?

    P.S. If you think this should be referred to SIU then YOU are the SIU, and need to answer that way.

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    HuskerCat
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    02/11/2008 10:54 PM

    I'm not SIU, and will give the insured points for creativity but also have a penalty flag ready to toss out!  Assuming this is an HO-3, I'd consider the following:

    A. Coverage A--Dwelling

    1. We cover:

    A. The dwelling on the “residence premises” shown in the Declarations, including structures attached to the dwelling; …

     

    B. Coverage B--Other Structures

    1.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.

     

    Then, I'd want to consider if there was "clear space" or if there was other evidence of actual connection (ie. slab) other than fencing, electrical, plumbing, etc. I'd probably also pull up the local county assessor's website and look at the most recent photo they took when they raised the taxes (that's pretty common annually around here, don't know about everywhere else).  If the insured was brazen enough to admit it to my face, it might lead one to look at other policy conditions such as Intentional Loss. Does the overt act of creating this "attachment" when loss is eminent constitute an intentional act?  An intentional act is generally thought of as pertaining to the "cause of loss"...but to intentionally create additional coverage by false means could bring the SIU hat off the rack.  Interviews with neighbors (every street has a few noses pressed to the windows all the time), photos from the "eye-in-the sky", property tax records showing # of bldgs on the premises, etc.  I'd imagine the agent, if captive, would also be pretty quick to admit any knowledge of such shenanigans lest he/she be subject to E&O for failure to insure the property to value much less be an accessory after the fact.     

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    stormcrow
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    02/11/2008 11:20 PM

    The insured did not try to hid anything, he taked to his agent and took steps to create a situation where is garage was attached before the loss. If he had done that one year before the event would there be any questions?  Does the policy contain any clauses that prevent the insured from making a change to his structure before a storm arrives? I think the Insured gets the payout, but would report the facts to the company, it's their call..  Did the agent have binding authority?  All the insured did was make sure the property was in complience with the coverage he discused with his agent.  I am curious why anyone would reguard this a shenagin. Creative yes, legal yes, although he may have broken a local building code.

    I want to die peacefully in my sleep like my grandfather, not screaming in terror like his passengers.
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    Leland
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    02/11/2008 11:30 PM
    Number one, is it wrong for the insured to modify their building in such a way as to make their insurance coverage work better?

    We are taught in the flood seminar that a garage with a toilet doesn't get any coverage. If the insured removed a toilet from his garage one day before an impending flood would this be a reason to still deny coverage "because it used to have a toilet and you just took it out the date before in order to get your garage covered"?

    How would you write a denial letter on either of these situations? Has the insured broken any laws, or better said, has the insured broken any laws or policy provisions that would warrant a denial of coverage over $30,000.??

    How's this for a denial letter:

    "We know what you were trying to do. You made your garage attached just so it would have better coverage. We agree that it was attached, but we think it was tricky that you thought of that. Plus you didn't have a building permit and besides it was really ugly and poorly done. Therefore, your claim is partly denied. We will consider your garage to be detached even though it wasn't, because no one is allowed to be that tricky"


    Seriously, if I bought a home in a flood area, and I had flood insurance, I would consider taking the toilet out of the garage. I would be stupid not to think about it. If I had a detached garage I might consider pulling permits and building a proper, professional quality covered walkway to make the two structures attached.

    Does it make a difference if:

    1) the homeowner makes changes in anticipation of an immediate event?
    2) the homeowner makes the changes primarily to improve their coverage?
    3) the homeowner makes changes that meet the language of the policy but are substandard construction quality?

    If so, why?
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    brighton
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    02/12/2008 12:16 AM

    This is one to refer to the carrier for review. Most states have court rulings on this very thing. Some states have gone so far as to state what constitutes a covered walkway or what is an attachment between the garage and house. Call the carrier and suggest an ROR be sent out asap if they do not already know the answer to this scenerio.

    Many years ago in Texas, all you needed was a 2x4 from the garage to a house and it was considered attatched. As far as I remember this is not the case any longer for the exact reason you bring up.

    Rocke Baker
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    Leland
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    02/12/2008 12:50 AM
    Thank you, Rocke. Can anyone post a copy of a relevant case.? Any other opinions?

    P.S. Please don't anynbody think I already know the answer to the questions I post. I might think I know, or have an opinion, but I'm glad to hear other's ideas or even to be told I'm wrong (If I am!)

    Anyway, Mike's suggestion of using satelite photos is a good one in many cases, and it's free on Zillow.com and also google maps. I sometimes get a roof picture that way to help me draw a roof.
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    Crosz
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    02/12/2008 1:48 AM

    Sounds to me the insured was unaware of the coverage issue when building the garage.  Once hearing about the issue he made an attempt to make it part of the dwelling BEFORE the storm hit. Basicly a temporary fix untill he could figure out a way to make it part of the dwelling.

    If that picture was taken before the storm had hit, I would do everything i could to cover him under Coverage A,  and send in the estimate as it being part of coverage A.  If somone stops you, they stop you.

    Covering somone who made an effort before damage was caused to make a garage a part of the building is hardly a moral choice of which to cover the insured or not IMO.  And also.. unless there are specific guidlines on what actually makes a garage "attatched", he may just be in the right by putting nails into both the garage and dwelling.

    Edit: in other words, cover the loss under coverage A. include a lognote of why you believe the garage is attatched to the dwelling.  Let your file reviewer decide for himself.  when your talking about $30,000 difference in coverage your chancing a lawsuit.

    Again, in my opinion.

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    kds008
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    02/12/2008 8:27 AM

    What I can't figure out is why the agent didn't just bind some additional coverage for the detached garage.  People often have detached garages that exceed the 10% and I know some carriers allow (actually require) they be insured for their RCV.   If you attach a $60K garage to the house without raising coverage A, you would likely now be insured for less than 80% for the whole thing.  What if the house blew away too and the carrier wanted to enforce the insurance to value?

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    sbeau4014
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    02/12/2008 9:21 AM
    What if the carrier wanted to enforce the insurance to value issues without the house blowing away? If it is attached, you look at the value of the house and the full value of the garage (plus the roof) in the value that applied to coverage A. If the guy chose not to increase the value of the B limit when he knew he didn't have enough coverage, chances are the A limit may not be adequate to both buildings combined. My gut reaction is that if the insured documents that the "roof" between the house and the garage were in place before the storm, you are on shaky ground looking at a denial or limitation of coverage to the APS limit. As for the 3 questions listed above, I don't think it has any bearing on the situation as listed. The only thing I can see in most insurance policies that could come into play is if the "substandard construction quality" caused or contributed to the loss, or caused an increase risk of loss (not value of damages), and then the defective construction materials, workmanshoip, design.... exclusion may trigger. I don't see any evidence of that here. I don't have any homeowners forms where I am at so I can't read the actual language, but I don't know what in the policy one could quote to decline or limit the claim except the valuation end of it. If it isn't in the policy or application, it doesn't matter what your feelings are about why it was done this way, benefit of any doubt goes to the insured.
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    cowboy26995
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    02/12/2008 11:19 AM

    I would definitely send out a reservation of rights letter. Did the insured inform his agent of the modification or did he simply inquire about coverage? The policy states that any material change in the risk should be brought to the attention of the carrier and if you ask me this qualifies. Also what is the value of the combined structures? Will $300,000.00 be sufficient to rebuild? What about bringing the combined structures in compliance to codes (increased costs) Does the insued still satisfy the 80% requirement for RCV?

    Marc Dubois
    Executive General Adjuster
    M.G.D. Claim Services Inc.
    "Your Commercial Claims Solution"
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    Leland
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    02/12/2008 11:28 AM
    I agree, the three questions probably don't matter. I think it would be covered. The questions were intended to be thought provoking.But I'm still hoping someone will post the relevant case law (if any) that Rocke mentioned above.

    This type of issue is like the famous tax case where Judge Learned Hand (his real name) ruled that the taxpayer could purposely structure his business afairs in whatever strange way he wanted in order to minimize tax. The idea being that just because the business was conducted in such a way to take advantage of "loopholes" in the law it was perfectly legal and ethical. It is the job of the government to eliminate the loophole.

    In the case of the poorly attached garage it is not the job of the adjuster to invent new interpretations of the policy based on his feelings.

    We've all heard the arguments about judges creating law from the bench.

    In my opinion this is similar to the situation adjusters are sometimes in- trying to invent policy where it doesn't exist. Remember, the insurance company is run by experienced, educated adults. If they wanted to exclude coverage for attached structures that are not attached in certain ways, they could do so. Come to think of it, they do have such an exclusion, it just doesn't appear to cover THIS example. (unless Rocke can shows us the case law).
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    Ray Hall
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    02/12/2008 12:11 PM

    The HO policy does not have an exclusion for poor quality of design or workmanship. This attached garage would have to be paid on an Acv basis, UNLESS the design, workmanship was the cause of the loss, which was not the case in a windstorm. The combined A structure would have to comply for RC. I don,t think I can ever remember the increased hazard involked, except for the peril of fire.

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    cowboy26995
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    02/12/2008 2:08 PM

    When the carrier accepted the risk as described there were two seperate structures. All types of consideration are put into premium calculation. Consider risk factors such as fire (attached more susceptible than detached) . The carrier reserves the right to percieve premium based on information submitted. If the carrier can demonstrate a difference in premium that could be charged they would legally have the right to pro rate the loss based on premium recieved versus premium due for the modified structure. Precedent has been established for this principal. This approach applies to losses caused by all perils not only fire as suggested by Ray.

    Marc Dubois
    Executive General Adjuster
    M.G.D. Claim Services Inc.
    "Your Commercial Claims Solution"
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    Leland
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    02/12/2008 3:36 PM
    Based on the comments here it seems it would be a good idea to interview the agent about what was said (even if it doesn't neccesarily appear to be relevant it might become relevant later), also run it by the carrier if they pro rate the loss as Marc mentions.

    1) Can anyone give examples of a loss being pro rated due to what Marc describes?
    2) Does it make a difference if the structure was changed right before the storm? The structure wasn't modified for a long time and therefore how would the carrier demonstrate that a higher premium would have been due? Take for example a single family residence that is turned into a duplex and one half rented out. Let's assume it was done legally. Does the insured have a duty to inform the carrier? How soon? What rights does the carrier have- prorate a loss, charge the increased premium that would have otherwise been due? I bet this depends on the state.
    3) does it make a difference if the carrier was aware/should have been aware of the modifications?

    I know this comes up when for example a commercial building is incorrectly insured under a residential policy. Or an owner occuppied policy is issued on a tenant occupied building. Is it handled differently depending on whether it was an error in the underwriting or an accurate underwriting followed by a change that was not communicated to the carrier?

    Anyway, I would really like to see the case law on what constitutes attachment, as someone else posted. This sounds like the state case law could be stricter than the policy language, which I know from California can be the case. Usually it is stricter to the carrier's disadvantage, not the insured's disadvantage.
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    cowboy26995
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    02/12/2008 4:12 PM

    Insured purchases a home with central oil forced air heating system and insures property as such, six months later installs a wood burning stove and does not advise carrier. A fire attributable to the woodstove ensues and causes damages to the building. Ratings for various heating systems applies and more premium is charged for auxilliary heating systems. Therefore if the insurer pays the loss they are fully entitled to pay the loss prorated to premium paid against premium that would have been charged times the loss. I'll find the jurisprudence applicable and post when located.

    Marc Dubois
    Executive General Adjuster
    M.G.D. Claim Services Inc.
    "Your Commercial Claims Solution"
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    cowboy26995
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    02/12/2008 5:02 PM

    FYI

     

     

     

    MATERIAL CHANGE

    Any change material to the risk and within the control and knowledge of the insured

    shall void the contract as to the part affected thereby, unless the change is promptly

    notified in writing to the Insurer or its local agent

     

    ; and the Insurer when so notified may

    return the unearned portion, if any, of the premium paid and cancel the contract, or may

    notify the Insured in writing that, if he desires the contract to continue in force, he must,

    within fifteen days of the receipt of the notice, pay to the Insurer an additional premium; and

    in default of such payment the contract shall no longer be in force and the Insurer shall

    return the unearned portion, if any, of the premium paid. (emphasis added)

    The insurer bears the onus of proving that a change is material to the risk; this is a question of

    fact in each case. The appropriate question with respect to materiality is whether, if the change

    had been disclosed, a reasonable insurer would have been influenced to either decline or

    continue its coverage, or to stipulate a higher premium. The onus is also on the insurer to prove

    its contention that it would have assessed the risk differently if it had been advised of the

    change

    Marc Dubois
    Executive General Adjuster
    M.G.D. Claim Services Inc.
    "Your Commercial Claims Solution"
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    sbeau4014
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    02/12/2008 7:17 PM
    In reference to what Marc is talking about, I am not aware of a loss payment being pro-rated, but am aware of a material change such as that being surcharged to the policy holder post loss if the change falls within the underwriting guidelines and calls for an increased premium. I am also aware of examples like he specifically listed above wherein policy's are cancelled midterm where an inspections (either U/W inspection or claim inspection) might show an increased hazard by putting in the wood burning stove and their guidelines do not allow underwriting of a risk with that in place. If that stove caused a fire, the insured put it in and didn't tell the agent/carrier, they are dead in the water. The carrier will have almost a slamdunk case to void the policy for the increased risk provision. You will probably find language like that in almost every property policy or application, and Ray since you were around when they drafted the original NY standard Fire Policy you probably remember that in the original 165 lines (or whatever the # was in Texas). It has been researched in both Tx and La on that very issue and there is caselaw to support it. Don't ask me to cite the case as I do not have them and can't put my hands on them readily, but if you want to subscribe to LexisNexis or Westlaw they are a world of knowledge. Besides when you subscribe to one of them, it will make the cost you pay for the claims program seem cheap........
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    HuskerCat
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    02/12/2008 11:50 PM

    I think we are all on the same page here following my initial reaction to the original post.  The HO-3 doesn't really address the situation, or morality issues for that matter.  One might liken it to inflating a contents loss...but that is a post-loss act vs. a pre-loss act.  So, I'd have to lean toward the defense of the carrier being burdened on the ITV factor only. 

    And, then also, what defines "clear space" and "attached".  Neither are specifically defined in the coverage form to address this kind of loss.  Like someone said earlier, ambiguity should be ruled in favor of the insured.  But if it comes down to a jury, and you were on that jury, how would you cast your opinion absent any precedent?  Should the moral majority rule? Or should the policyholder be rewarded for their creativity?  Good scenario, Leland.

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    jlombardo
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    02/13/2008 1:14 PM
    Kim,
    You are right on the money...the agent should have immediately bound a higher amount of coverage for the detached garage....however, that being said, I think that the garage attached by the planks from the main risk roof to the roof of the garage will allow the insured to collect under coverage A.
    There already would have been coverage for the contents under coverage C of the HO-3........

    Joe
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    broberts
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    02/15/2008 7:31 PM
    A case could be made for either providing coverage or denial based up the following:

    Case for coverage:

    The policy does not specifically state what constitutes attachment, it does clarify what is considered separation therefore defining a structure as other structure, Leland’s Example does not fall with in that definition. The fact that the Policyholder painted the boards to match the shingles would imply he was creating a permanent situation.

    With that being said the issue of ITV percentage will come into play and potentially cause the PH to be underinsured

    Case for denial: SF Homeowners policy FP-7955

    Declarations continued

    We agree to provide the insurance described in this policy:

    1. Based upon your payment for the premium for the coverage you chose,

    2. Based upon your compliance with all applicable provisions of this policy; and

    3. in reliance on your statements in these declarations.

    Section I & II - Conditions

    2 - Concealment or Fraud

    We provide coverage to no "Insured" under this policy if, whether before or after a loss, an "insured" has:

    1. Intentionally concealed or misrepresented any material fact or circumstances;

    To build a case for this the adjuster must get a copy of the application from Agent or underwriting to specifically identify what the PH requested to be insured. Specifically what the sqft of the living area is. This sqft is what the agent uses to determine what the value of the dwelling is. Premiums are based upon this amount. A detached garage is not included in sqft for Living area. This would be verified by tax records as well. Consequently a lower premium would be paid if the PH stated the structure was a detached garage on the application. But a garage area that is turned into an entertainment area (based upon Leland’s example) would cause the garage to be included in living area consequently a higher premium would be due. Based upon PH information provided it could be interpreted that PH misrepresented on declaration.

    The agent's conversation with PH would either strengthen this position or cause it to collapse. Leland’s example does not give enough info on the extent of conversation. If PH only called to verify coverage amount on a detached garage and did not advise agent that he had converted the garage into an entertainment area and he was considering attachment through a roofline. Then the PH would satisfy the "Intentional Concealment" provision in the policy.

    Consequently Payment would be limited to the 10% limit for other structures.

    Now most carriers who are concerned with customer service and litigation expense would probably allow payment with out applying the 10% limit. Giving PH the benefit of doubt but send a note to have an underwriting review done.

    Another way to provide coverage for the PH is deal with all the furnishings as coverage B contents since the garage did not have them in the first place they could be considered after market installations therefore could be removed and taken to another residence. With that being the case the building may come under the 10% limit and everything else covered under contents. That’s if the PH has available amount under that coverage if the rest of his dwelling didn't get destroyed.

    Of course every claim is handled on it own merits and based upon the adjusters investigation of the facts a recommendation is given to the carrier and ultimately they decide.
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