January Forms & Substance
What is “Vacant” Land?
The ISO HO policies automatically include coverage for vacant land as part of the definition of “insured location.” But what constitutes “vacant land?”
Does a water pump, abandoned building foundation, road, fence or other object remove the property completely from liability coverage for activities that are only covered while on an “insured location?”
The homeowners manual definition appears to express the policy intent pretty clearly by defining “vacant land” to mean “any land where there are no man-made structures.” But how have the courts interpreted the policy/contract language?
In one case, a child fell down a well not properly sealed by a concrete pad. The court ruled that the land was not vacant. According to Travelers Indemnity Co. v. Holman, 330 F.2d 142, 5th Cir. Tex. (1964), “vacant land” requires that the property be unoccupied, unused and “in its natural state.” In De Lisa v. Amica Mutual Ins. Co., 59 A.D.2d 380, 399 N.Y.S.2d 909 (1977), a child was injured in an abandoned structure on land owned by the insured. The court ruled that “vacant land” meant that there was no structure or building on the land, so there was no coverage. In O’Connor v. Safeco Ins. Co., 352 So. 2d 1244, Fla. Dist. Ct. App. 1st Dist. (1977), property was determined not to be vacant because a surfaced road went through it.
For a more detailed analysis and examples, click here.
Landlords and TIBs
A building owner leased a$2 million building to a floor coverings store. The tenant, with the owner’s permission, permanently installed $1 million of floor coverings. Following a partial, but significant, loss, the owner discovered that he was inadequately insured. Since his building at the time of the loss had a value of $3million, he received essentially a third of the coinsurance penalty because the building limit had not been increased to reflect the increased value.
Legally, once these improvements were added to the real property, they became the property of the building owner under the realty laws of that state. What if he legally does not own them? The ISO building and personal property form, under the coinsurance condition, makes no reference to ownership of the building—it just requires that the policy limit equal 80% or more of the building value at the time of the loss. The Coverage A “building” definition makes no mention of ownership (you only find that under Coverage B for business personal property).The “building” is whatever is described on the declarations page.
What about the insurable interest condition if ownership doesn’t transfer to the landlord? It only limits recovery, with no mention of it affecting loss settlement under the coinsurance clause. The coinsurance condition, though, does have one provision that might apply.
To examine this situation in more depth, click here.
What is “Fragile?”
A large, ornate wooden bowl was scheduled on the insured’s homeowners policy. The bowl was accidentally broken and the insurer denied the claim citing the exclusion for “breakage of art glass windows, glassware, statuary, marble, bric-a-brac, porcelains and similar fragile articles.” Is a wooden bowl a “fragile” article? In the book, How to Draft and Interpret Insurance Policies, the author, the late Ken Wollner, discusses these two legal principles:
Ejusdem generis—“If the contract provision lists specific items and ends with a general term, the meaning of the general term may be limited to the same general class as the specific items.” This was Bill Clinton’s defense that lying under oath was not an impeachable offense because impeachment can only be made on the grounds of “treason, bribery and ‘other high crimes and misdemeanors.’” The argument was that lying under oath is not in the same class as treason or bribery.
Noscitur a sociis—“If the contract provision enumerates specific items, a person or thing will fall within the list if the person or thing is associated with the items on the list.” This was the basis most often cited for the war exclusion not applying to the WTC attacks and it was used in the often cited case of Pan American World Airways v. Aetna Casualty & Surety Co., 505F.2d 989 (2ndCir. 1974) where the court found that the hijackers’ acts were criminal rather than military and that they were the agents of a radical political group rather than a sovereign government.
Based on these principles, do you think a wooden bowl is a “fragile” item? For our analysis and information on how to order the book, click here.
Bill Wilson (bill.wilson@iiaba.net) is Big "I" director of the Virtual University, an online learning center for agents and brokers.
