CHAPTER FOUR - SECTION ONE EXCLUSIONS

ISO. 1.

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.

Other Company. 1.

We do not insure for loss to the property described in Coverage A either consisting of, or directly and immediately caused by, one or more of the following:

Code up-grades because of catastrophe: Unambiguous language of the ordinance or law exclusion, the anti-concurrent causation preface to that exclusion (..regardless of any other cause or event contributing concurrently or in any sequence to the loss), and the ordinance or law portion of the policy's loss settlement clause precluded (excluded) coverage under replacement-cost Homeowners policies for code upgrade costs imposed by Dade County following Hurricane Andrew. The court said the preface to the ordinance or law exclusion alerted readers that coverage for losses caused by the enforcement of ordinance or law would not be afforded regardless of whether any other cause or causes brought about the loss.

Ambiguous exclusionary clause: Many courts have ruled that an ambiguous exclusionary clause must be strictly construed in favor of coverage. Further, a plainly expressed exclusion should be construed and enforced as set forth in the policy.

ORDINANCE OR LAW

ISO. 1. 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.

a. Ordinance or Law, meaning enforcement of any ordinance or law regulating the construction, repair, or demolition of a building or other structure, unless specifically provided under this policy.

Other Company.

2. We do not insure under any coverage for any loss which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss:

a. Ordinance or Law, meaning enforcement of any ordinance or law regulating the construction, repair or demolition of a building or other structure, unless specifically provided under this policy.

Damage to a dock: In a situation where a dock has suffered losses and a claim was made to the Homeowners insurance, the court held that the Homeowners policy expressly excluded the costs of construction upgrades required by ordinances and laws to repair the insured's dock. The additional coverage entitled "Guaranteed Replacement Cost Coverage” did not provide coverage for the costs of construction upgrades because the ordinances and laws exclusion applied to this measure of indemnity.

Demolition of partially collapsed building: This section of the policy, since it deals with laws and ordinances, walks a very strict line. An example of this is the decision handed down when the policy afforded coverage for destruction of insured dwelling that was condemned and demolished on order of the Department of Licenses and Inspections because of its partially collapsed condition, which was caused by decay. Ordinance or law exclusion did not preclude coverage because the Department's action did not cause or contribute to the loss; and the action was only in recognition of collapse that had already occurred.

Purchaser of earthquake insurance entitled to cost of replacement: Guaranteed replacement cost coverage and value protection provisions included in the same policy with exclusions for the code of grade and repair to land are incompatible, and policy is ambiguous as a matter of law. An insured who had purchased earthquake insurance was entitled to the cost of replacement, including code upgrades, despite the "ordinance or law" exclusion. Exclusion for "damage to land" was also ambiguous where the insured had purchased earthquake coverage, and the insured was thus entitled to code-upgrade cost of reinforcing his swimming pool after earthquake.

EARTH MOVEMENT

ISO. 1.

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....

b. Earth Movement, meaning earthquake including land shock waves or tremors before, during or after a volcanic eruption; landslide; mudflow; earth sinking, rising or shifting; unless direct loss by:

(1) fire;

(2) explosion; or

(3) breakage of glass or safety glazing material which is part of a building, storm door or storm window;

ensues and then we will pay only for the ensuing loss. This exclusion does not apply to loss by theft.

Other Company.

2. We do not insure under any coverage for any loss, which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss: ...

b. Earth Movement, meaning the sinking, rising, shifting, expanding or contracting of earth, all whether combined with water or not. Earth movement includes but is not limited to earthquake, landslide, mudflow, sinkhole, subsidence and erosion. Earth movement also includes volcanic explosion or lava flow, except as specifically provided in Section 1, Additional Coverages for Volcanic Action.

We do not insure for any direct loss by fire, explosion other than explosion of a volcano, theft, or breakage of glass or safety glazing materials resulting from earth movement.

F Concurrent causation: loss caused by two or more perils. A certain amount of controversy exists when one of the perils is insured and the other peril is excluded from coverage. Some courts are finding out that even if only one of the perils is insured against, the policy providing the coverage for that peril must pay the damages.

F Subsidence: The act of becoming less violent or agitated, sinking to a lower level, to sink to or settle on, the bottom.

These two terms are used in various places in the Homeowners policy. “Subsidence” is often used in conjunction with “mine” to reflect the settling – or in the case of a mine, the “cave-in.”

Soil collapse because of broken sprinkler system: In on particularly definitive case, the insured's home was damaged when the soil beneath it collapsed when water escaped from a broken automatic sprinkler system. Earth movement exclusion applied to damage sustained by a home. Policy defined "earth movement" and included in the definition sinking or shifting, whether combined with water or not.

CONSUMER APPLICATION

The insureds' residence was located on an ancient landslide site and sustained interior and exterior cracking. The insureds had an all-risk Homeowners policy that excluded loss caused by earth movement and/or water, but did not exclude losses caused by the negligence of third parties. The court held that the negligence of certain individuals and entities in connection with the construction of the dwelling and maintenance of the landslide site was the efficient proximate cause of the damage to the dwelling. Therefore the loss was covered, notwithstanding the operation of the excluded perils. ⁴⁶

Cracked slab: In most situations, the "earth movement" exclusion in a Homeowners policy does not preclude coverage for a cracked slab allegedly caused by the negligence of a contractor. The "earth movement" exclusion generally applies only to naturally occurring earth movement.

Start of limitation period: For claims made under Homeowners policy for latent or progressive property damage, the date of loss from which the limitation period in policy begins to run is determined on the basis of when appreciable damage occurred.

Erosion from nearby lake: In a situation where water action from a nearby lake eroded the base of the cliff upon which the insureds’ house was constructed, causing subsidence of the ground on the slope and top of the embankment; where erosion, in turn, caused collapse of stairs and patio and separation of foundation wall, loss was excluded under earth movement and water damage exclusions.

Ambiguous earth movement exclusion: On the other hand, another court in a neighboring state (in the same year) ruled that the earth movement exclusion was ambiguous because it could be reasonably interpreted to exclude earth movement due to natural events and events of human origin or to exclude earth movement due to natural events only. Exclusion did not therefore bar coverage for loss from collapse of a hillside due to construction on adjoining property. The difference appears to be that in the previous case, the erosion was caused by “nature” and in the second case, caused by human activity. In fact, in another completely unrelated case, the court stated that “Under an all-risk policy excluding ‘earth movement ... such as earthquake, landslide, or earth sinking,’ the term ‘earth movement’ referred only to natural causes, as opposed to phenomena caused by human forces.”

Earth movement exclusion: Exclusion for any direct or indirect loss due to earth movement can relieve an insurer of liability for replacement of soil washed away when a pipe burst (a covered peril). In one case it was determined that the "efficient proximate cause" rule is inapplicable (See next page), as the insured had specifically rejected earth movement coverage. In those states (mostly Western) that have a high vulnerability to earthquake damage, most insurers will require that the applicant for Homeowners insurance specifically state that they do not want to purchase earthquake (earth movement) coverage.

Faulty workmanship on earth movement exclusion: When heavy rains wash away a foundation, the exclusion for earth movement caused by faulty workmanship would be applicable to a first-party claim, and “efficient proximate cause of loss” is not a covered peril.

Earth movement exclusions not apply to explosions: A court found that the "earth movement" exclusion of a homeowners policy did not apply to explosions and, instead, was limited to "each movement arising from natural causes."

Broken water pipe causing earth movement: The "earth movement" exclusion in a homeowners policy excluded coverage for losses arising from earth movement regardless of whether the cause was natural or manmade. Therefore, the court affirmed the denial of coverage for loss occurring when a broken water pipe caused soil beneath the insured's home to wash away.

WATER DAMAGE

c. Water Damage, meaning:

Other Company. 2. We do not insure under any coverage for any loss, which would not have occurred in the absence of one or more of the following excluded events. We do not insure such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss: ...

c. Water Damage, meaning:

F The “Efficient proximate cause rule” states that when a specifically insured peril sets other, uninsured causes in motion, the specifically insured peril shall be considered the proximate cause of the entire loss.

Water diverted from neighboring property: When water was diverted into the insured’s property because of berms and dams built by a neighbor, the Homeowners policy excludes damage to the insured’s property.

Erosion from nearly lake (also discussed earlier): If damage to an insured’s residence is caused by rising water from a nearby lake eroding the base of the cliff upon which the residence stands, and the erosion caused collapse of stairs and patio and separation of foundation wall, loss would be excluded under earth movement and water damage exclusions.

CONSUMER APPLICATION

In a suit by insureds to recover for residential damage incurred as a result of landslides and mudflows proximately caused by rain, the insurer argued the weather conditions exclusion applied to damage caused by rain if the rain caused an otherwise excluded occurrence. "Efficient proximate cause rule" states that when a specifically insured peril sets other, uninsured causes in motion, the specifically insured peril shall be considered the proximate cause of the entire loss. Insurer's attempt to utilize "weather conditions" exclusion was found to be an attempt to circumvent "efficient proximate cause" rule and was unenforceable. ⁴⁷

SURFACE WATER

c. Water Damage, meaning:

(1) flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind; ...

Direct loss by fire, explosion or theft resulting from water damage is covered.

Other Company.

2. We do not insure under any coverage for any loss, which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss: ...

c. Water Damage, meaning:

(1) flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, all whether driven by wind or not; ... However, we do insure for any direct loss by fire, explosion, or theft resulting from water damage.

CONSUMER APPLICATION

During a sudden storm, over four inches of rain fell, causing a large volume of water to collect in area circumscribed by an earthen berm. The court upheld the surface water exclusion. Thereafter, a broken window allowed such waters to flow into the insureds' basement. The insureds' loss was caused by surface water, which was excluded under the policy, rather than rain damage, which was covered. ⁴⁸

Meaning of flood: HOWEVER, another court ruled that the exclusion for water damage resulting from "flood, surface water, waves, tidal water, overflow of a body of water" must be given its plain, ordinary, and popular meaning. Average purchaser of insurance would expect the term "flood" to encompass rain-induced flood.

To reiterate, in those cases where there can be a difference interpretation of an applicable provision, the courts will almost always rule in favor of the insured, and this is the way that it should be - within reason.

SEWER-DRAIN BACKUP

c. Water Damage, meaning: ...

(2) water which backs up through sewers or drains or which overflows from a sump; ...

Direct loss by fire, explosion or theft resulting from water damage is covered.

Other Company. 2. We do not insure under any coverage for any loss, which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss: ...

c. Water Damage, meaning: ...

(2) water which backs up through sewers or drains, or water which enters into and overflow from within a sump pump, sump pump well or any other system designed to remove subsurface water which is drained from the foundation area; ...

However, we do insure for any direct loss by fire, explosion or theft resulting from water damage.

Whose stopped-up drain? A court ruling, (although it pertained to a business policy the same principal should be extended to the Homeowners policy) the exclusion for water that backs-up from sewers or drains in the insured's business policy applied to damage caused when sewage from other stores in the shopping mall backed up into the insured's store as a result of blockage off the insured's premises in a main drainpipe servicing the entire mall. The court held that a sewer or drain begins at the property line so that the backup was from a sewer or drain.

Sump pump exclusion: In a ruling regarding the sump-pump exclusion. a severe ice storm caused a power failure, which in turn caused the failure of insureds' sump pump. The insureds sustained personal property damage arising from the failure of the sump pump. The court held that the loss was not covered under the Homeowners policy provision covering losses caused by weight of ice; instead, the insureds' claim fell squarely in the exclusion for damage caused by sump pump failure.

Water contamination: One of the major hazards of sewer backup, is contamination of the water. A court recognized the exclusion relating to water that backs up to sewers or drains, applied to sewer backup and excluded resulting damage caused by organisms and sewage in the water. Under reasonable interpretation of policy, exclusion was not limited to pure water but included contaminated water.

WATER SEEPAGE

c. Water Damage, meaning: ...

(3) water below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure.

Direct loss by fire, explosion or theft resulting from water damage is covered.

c. Water Damage, meaning: ...

(3) natural water below the surface of the ground, including water which exerts pressure on, or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure.

However, we do insure for any direct loss by fire, explosion, or theft resulting from water damage.

CONSUMER APPLICATION

The insureds' residence was located on an ancient landslide site and sustained interior and exterior cracking. The insureds had an all-risk Homeowners policy that excluded loss caused by earth movement and/or water but did not exclude losses caused by the negligence of third parties. The court held that the negligence of certain individuals and entities in connection with the construction of the dwelling and maintenance of the landslide site was the efficient proximate cause of the damage to the dwelling. Therefore the loss was covered, notwithstanding the operation of the excluded perils. ⁴⁹

WATER DAMAGE CAUSATION

c. Water Damage, meaning: ...

Direct loss by fire, explosion or theft resulting from water damage is covered.

c. Water Damage, meaning: ...

However, we do insure for any direct loss by fire, explosion, or theft resulting from water damage.

Explosion because of seeping water: Coverage would be allowed where an "explosion ensued" and coverage existed where a stream 100 feet from the insured's premises overflowed because rain and water seeped into basement and simultaneously a gas burner exploded, blowing a door off and allowing the full deluge to enter.

Explosion necessary for coverage: Coverage would NOT be allowed where there was no “explosion, “Water damage to the insured premises was not covered under provision reimbursing direct loss that follows water damage caused by fire, explosion, or theft, without evidence of "explosion," meaning sudden or rapid combustion or violent expansion of air accompanied by a sound.”

POWER FAILURE

d. Power Failure, meaning the failure of power or other utility service if the failure takes place off the residence premises. But, if a Peril Insured Against ensues on the residence premises, we will pay only for that ensuing loss.

Other Company. No applicable language.

Food spoilation: "Off premises power failure" clause would not exclude coverage for food spoilation due to power failure when power loss was caused by a hurricane (i.e., a covered peril).

NEGLECT

e. Neglect, meaning neglect of the insured to use all reasonable means to save and preserve property at and after the time of a loss.

Other Company.

d. Neglect, meaning neglect of the insured to use all reasonable means to save and preserve property at and after the time of a loss, or when property is endangered.

Innocent coinsureds: One court ruling determined that innocent coinsureds could not recover any part of loss to insured property even though policy provided that each named insured was a separate insured under the policy. The use of the terms "an" or "any" in the policy's neglect and intentional act exclusions indicated that the insureds' obligations under those provisions were joint, not several.

CONSUMER APPLICATION

Insurer relied on policy exclusion for neglect of the insured where the insured mailed a ring certified mail and uninsured to the jeweler in Mobile, Alabama, from whom it had been purchased, and a stone from the ring was lost in transit. Exclusion was held inapplicable where there was no prohibition in the policy against mailing the insured item. ⁵⁰

WAR, REBELLION, ETC.

f. War, including undeclared war, civil war, insurrection, rebellion, revolution, warlike act by a military force or military personnel, destruction or seizure or use for a military purpose, and including any consequence of any of these. Discharge of a nuclear weapon will be deemed a warlike act even if accidental.

Other Company. 2. We do not insure under any coverage for any loss, which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss: ...

e. War, including any undeclared war, civil war, insurrection, rebellion, revolution, warlike act by a military force or military personnel, destruction or seizure or use for a military purpose, and including any consequence of any of these. Discharge of a nuclear weapon shall be deemed a warlike act even if accidental.

Property confiscated by police: When an insured purchased stolen property that was later confiscated by the police, the insured was not barred from recovery by Governmental Action exclusion.

NUCLEAR HAZARD

ISO. 1.

g. Nuclear Hazard, to the extent set forth in the Nuclear Hazard Clause of Section I-Conditions.

Other Company. 2.

We do not insure under any coverage for any loss, which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of: (a) the cause of the excluded event, or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss: ...

f. Nuclear Hazard, meaning any nuclear reaction, radiation, or radioactive contamination, all whether controlled or uncontrolled or however caused, or any consequence of any of these. Loss caused by the nuclear hazard shall not be considered loss caused by fire, explosion, or smoke. However, we do insure for direct loss by fire resulting from nuclear hazard.

This is arguably the most non-controversial provision of this policy. There could be a loss of property if an insured residence accidentally received radiation being transported through the neighborhood, for instance. Otherwise, it is one of those provisions that no one wants exercised.

INTENTIONAL LOSS

ISO. 1.

h. Intentional Loss, meaning any loss arising out of any act committed:

(1) by or at the direction of an insured; and

(2) with the intent to cause a loss.

Other Company. 14.

Intentional Acts. If you or any person insured under this policy causes or procures a loss to property covered under this policy for the purpose of obtaining insurance benefits, then this policy is void and we will not pay you or any other insured for this loss.

Arson proven: A prima facie case of arson can be shown when the insurer introduces evidence that proves arson by someone, a motive by the insured, and unexplained surrounding circumstantial evidence implicating the insured.

Intentional Acts: Where the insurer can show a prima facie case by evidence indicating (1) arson by someone; (2) motive by the insured; and (3) unexplained surrounding circumstantial evidence implicating the insured, the “Intentional Acts” exclusion will prevail.

Non-guilt of insured in arson trial: The estate of a deceased wife was entitled to recovery for loss and damage to an insured residence and contents, resulting from an arson fire in which wife died. The husband was acquitted of murder and jury in probate court trial and it was determined that he did not set or procure the setting of the fire in contravention of policy exclusion for intentional acts.

Use of “insured” in intentional acts definition: In an attempt to recover damages due to intentional acts of the insured, a court ruled that the definition of "insured" as used in the intentional acts exclusion was not ambiguous because the terms "you" and "insured" were clearly defined in the policy to include a resident spouse. Thus the Homeowners insurance policy unambiguously excluded coverage for damages due to the intentional acts of the sole named insured's husband, who lived in the named insured's home.

CONSUMER APPLICATION

Evidence that a fire was intentionally set using gasoline; there was no accidental or natural cause of the fire discovered; the insured was the last person known to have left the premises; the insured had exclusive possession of the premises; the insured changed her routine prior to fire; the insured had been notified shortly before fire of possible loss of job unless she relocated (and she had executed papers to relocate); and furthermore, items listed on inventory submitted by the insured included items not in the house at the time of the fire - was sufficient to submit issue of arson by the insured to a jury.

F The "intentional acts" exclusion only applies when the insured not only intends the original allegedly intentional act, but also (intends) the resulting injury arising from the act.

Non-recoverability of innocent spouse: In considering coverage for a fire loss, an innocent, noncollusive spouse may not recover under a fire insurance policy issued to a husband and wife when other spouse intentionally set fire to the property.

INSURABLE INTEREST

ISO. 1. Insurable Interest and Limit of Liability. Even if more than one person has an insurable interest in the property covered, we will not be liable in any one loss:

a. to the insured for more than the amount of the insured's interest at the time of loss; or

b. for more than the applicable limit of liability.

Other Company. 1. Insurable Interest and Limit of Liability. Even if more than one person has an insurable interest in the property covered, we shall not be liable:

a. to the insured for an amount greater than the insured's interest; nor

b. for more than the applicable limit of liability.

F Insurable interest: (1) the owner of property has an insurable interest because of the expectation of monetary loss if that property is damaged or destroyed; (2) creditor of an insured has an insurable interest in property pledged as security.

Insurable interest has to exist both at the inception of the contract and at the time of a loss. For example, an insured can purchase a Homeowners policy because of insurable interest in a home. Upon selling it, the insured no longer has an insurable interest because there is no expectation of a monetary loss should the home burn down.

Insurable interest where property signed to the vendees: Both the mortgagee, who was named as a loss payee in a policy, and the vendors/ mortgagors had an insurable interest in the property at the time the insurance was obtained, even if the vendors had signed the deed to the property to the vendees, who assumed the mortgage, prior to the issuance of the policy. The assumption of the mortgage made the vendees primarily responsible and the vendors sureties.

CONSUMER APPLICATION

The liability-limiting language of the policy stating that the named insured must have full legal title to the building and the land did not diminish the insurer's liability for the entire loss suffered by its policyholder where the facts showed (1) the policyholder had paid premiums in an amount established by the insurer to provide coverage for the entire value of the home, (2) a default judgment had been entered against the policyholder for the entire balance of the note due to the vendor/mortgagee (who, as mortgagee, actually had legal title), and (3) the policyholder's son's and daughter-in-law's names appeared on the deed only as cosigners for the policy holder. ⁵²

Mortgagee insurable interest: A mortgagee has an insurable interest in the insured property up to the amount of the mortgage debt. When a mortgagee purchases the insured property by a full credit bid, the mortgagee's insurable interest is extinguished. An insurer has no duty to inform a mortgagee that the mortgagee's insurable interest will be extinguished by a full credit bid purchase of the insured property. Now the mortgagee is now the property owner so coverage should be obtained on that basis.

Insurable interest in other structures: Under a Homeowners policy, an insured does not have an insurable interest in "other structures" where they were merely permitted to use the other structure. Mere use or license to use property alone is clearly insufficient to create an insurable interest.

Recovery of policy proceeds after transfer of home: Where an ex-wife of the insured sought to recover fire insurance proceeds after their home, which had been transferred to her ex-husband in their dissolution agreement, was destroyed by fire. The court held that she did not have an insurable interest, or a right to the insurance proceeds, even though she was a titleholder of record and liable for mortgage payments, and further, they ruled that her ex-husband was the sole equitable owner of the property particularly since the insurer had satisfied the mortgage. (If this is a little hazy, after the fire, the insurer paid off the mortgage, but the ex-wife thought that some of the money should have gone to her as one of the responsible parties to the mortgage).

Amount recoverable for innocent insured wife: In another situation, but where there was no mortgage involved, an innocent insured wife could recover one-half of insurance proceeds for fire loss to barn and personal property, even if the insurer proved by preponderance of evidence that insured husband had committed arson and fraud.

F A party may not recover insurance proceeds in excess of that party's interest in the property insured.

Length of insurable interest: An insured would no longer have an insurable interest in a property where a foreclosure sale occurred 11 days prior to the fire and the insureds were tenants at sufferance subject to immediate eviction.

CONSUMER APPLICATION

Where fire loss occurred to house upon which vendor under land contract had foreclosed ,but vendee remained in possession, insurance proceeds were payable to the vendor, who was named as mortgagee on insurance policy obtained by vendee. It would be unjust for a vendor who owned property free and clear to suffer an unreimbursed loss, while the vendee who no longer had an interest in the property received a windfall. ⁵³

Coverage denied because of refusal to answer questions: A court issued a summary judgment, upheld in appeal, in favor of the insurer who had denied coverage to innocent insured on the basis of refusal of coinsured to answer questions concerning arson fire and other potential criminal matters. Policy definition of word "you" did not require both of the named insureds to breach concealment clause before coverage was voided.

(Note: In case it has not become obvious by now, a “coinsured” usually refers to a spouse, an “innocent” coinsured usually means that one spouse does not know what the other spouse has done, or is accused of doing.)

Amount of insurable interest when mortgage broker held title to residence: An insured sued the insurer for damage to the dwelling and for loss of use. The insurer alleged that the insured did not have an "insurable interest." The court found that as a matter of first impression, the insured had an "insurable interest" in the house for at least the amount of the repairs and improvements not withstanding that their mortgage broker held title to the house.

STUDY QUESTIONS

1. Courts generally have upheld the rulings that ambiguous exclusionary clauses must be _____________, a plainly expressed exclusion should be _____________________.

A. strictly construed in favor of coverage – construed and enforced as set forth in the policy.

B. construed and enforced as set forth in the policy - construed and enforced asset forth in the policy.

C. upheld in the strictest sense - disregarded.

D. interpreted very broadly - interpreted very narrowly.

2. “Earth Movement” in a Homeowners policy does NOT mean

A. volcanic eruption.

B. landslide.

C. explosion.

D. earth sinking (sinkhole).

3. A court held that negligence of a third party in construction of a dwelling and maintenance of the landslide site was the efficient _______ _________ of damage to an insured’s residence by interior and exterior cracking.

A. approximate reason

B. logical location.

C. proximate cause

D. interaction causibility

4. As a general rule, in those cases where there can be a difference interpretation of an applicable provision, the courts will

A. always rule in favor of the insurance company.

B. almost always rule in favor of the insured.

C. never rule in favor of the insured.

D. will never make a rule but will refer the case to a jury.

5. After a fire, causing partial destruction of a home, the insured refused to put up plastic or plywood over the windows and holes in the roof, in the hope that rain will cause so much damage that the whole house would have to be rebuilt. The insured did not make the claim, but his wife made the claim, in case the insurance company had a problem with what he did.

A. The Homeowners policy will not pay as it is the duty of the insured to protect the policy,

and the claim by a coinsured would not change the decision.

B. The Homeowners policy will cover the previous damage and any additional damage, as it

is the responsibility of the insurance company to take immediate action to save the

structure.

C. The Homeowners policy will pay for the original damage, but not for the damage caused

by the neglect of the insured. The position of the coinsured is the same as the insured.

D. The Homeowners policy will be cancelled ab initio.

6. Which of the following losses due to Water Damage, would be covered under the Homeowners policy?

A. Flood,.

B. Sewer drain backup.

C. Water below the ground, seeping through cracks in a driveway.

D. Flooding of a basement because of rain coming through a broken window caused when a

tree, hit by lightning, fell against the house.

7. The policy arrested John for burning down his house. They presented evidence that someone burned down the house (arson), the insured had a motive as he was in financial difficulty and needed the insurance on the house, which was probably overinsured; and other evidence pointed to the fact that he had opportunity. What will the Homeowners policy cover?

A. The policy will cover the fire loss completely, as there were not eye-witnesses to arson involving John.

B. The policy will not cover the fire loss as it would be considered as being caused by an “intentional act.”

C. The policy would pay for the fire loss as it would be difficult to prove that in John’s mind, he intended to burn down the house, as he stated he just wanted to burn the porch so he could replace it.

D. In a situation like this, the policy would be cancelled and premiums returned.

8. Which of the following statements regarding insurable interest is NOT true?

A. The owner of the property is the only person that would have an insurable interest as he would be the only one to experience monetary loss if the property were destroyed.

B. Any insurable interest has to exist both at the inception of the contract and at the time of loss.

C. The creditor of an insured has an insurable interest in property pledged as a security.

D. The Homeowners insurance would not be liable for more than the insured’s interest at the time of loss.

9. Mary and Walter divorced and the home was given to Walter exclusively, but Mary remained a titleholder and was still liable for mortgage payments. Shortly after the divorce was final, the house was destroyed by fire and the Homeowners insurance paid for replacement of the house, including paying off the existing mortgage. What is Mary’s position in this situation?

A. She should share in at least half of the payment by the insurer.

B. She should receive all of the payment less the mortgage pay-off.

C. She should receive all of the payments, including the mortgage pay-off.

D. She will receive nothing as her ex-husband is the sole equitable owner of the property, particularly since the mortgage has been satisfied.

10. David and Judy jointly owned a rural home, with a barn with a connecting garage and storage area. David set the house on fire, which spread to the barn and garage, destroying the barn, garage and considerable personal property stored in the buildings. Obviously, David would not receive any of the Homeowners insurance proceeds, but Judy, as coinsured, filed for benefits as she had no knowledge or complicity in the arson. (There is no mortgage)

A. Judy will not receive any benefits from the policy.

B. Since Judy had nothing to do with it, she will receive the benefits for the house, barn and garage, and personal property destroyed in the fire.

C. Judy will receive one-half of the benefits for the loss to the barn, garage and personal property.

D. Judy will receive one-half of the loss payments for replacement of the home.

ANSWERS TO STUDY QUESTIONS

1A 2C 3C 4B 5C 6D 7B 8A 9D 10C