An insured’s policy contains an Underground Utility endorsement which reads as follows:
Underground Utility Locator Service
It is a condition to the coverage afforded by this policy that before the insured commences any digging, excavation, boring or underground or similar work, a local locator service must come to the job site and mark the location of all underground lines, pies, cables and underground utilities. The insured must obtain proof of the completion of the locating service in writing from the locator service.
The insurance does not apply to any claims, losses, costs or expenses arising out of such operations when the insured has failed to comply with the conditions noted herein.
Recently, the insured was performing excavation work for a telecommunications company which involved digging a line on a private residence to bury a telephone line. During the work, the crew hit the septic tank at the residence, causing damage.
Now, the carrier is denying the claim because the insured did not contact a locator service to mark any underground lines on the property prior to performing the work.
Q: After the loss, I contacted the local locator service to ask whether they would have marked the septic tank. They stated that even if they had been called, they do not mark the location of septic tanks on a private residence.
The insured understands there would be no coverage if he and his crew had damaged a public utility line, pipe or cable without calling first. But he does not understand why the claim was denied, since the septic tank would not have been marked, anyway.
Is this denial correct?
Response 1: The endorsement doesn't say that it applies only if the locator company marks the utility in question. It says “any digging.” Basically, the insured violated the contract. It doesn't matter what he hit—it matters what he did not do beforehand, as required by the contract.
Response 2: You’ve got to love it—another case where a coverage need is excluded for the benefit of the insurer. Unfortunately, though, the form provides for a broader requirement. It not only requires a call before you dig, but also adds that the service must come to the job site and provide “proof of the completion of the locating service in writing."
That means none of the many electronic communications methods available today would fulfill the requirements of the contract. In my jurisdiction, none of the local utilities in the public domain provide proof in writing, and they only mark public utility lines.
In other words, what this endorsement provides is a “right to work" policy, but no actual coverage. Hopefully, the lesson learned is not a very expensive one. Dump this policy and find one that actually provides coverage.
Response 3: If the carrier has denied the claim, the denial should cite the policy wording that applies.
The endorsement is clear that the insured must call the locator service prior to digging, and that the locator service must mark all the items listed in the endorsement. But the endorsement does not specify whether a septic system qualifies as an underground utility.
In my opinion, the insured violated the requirement in the endorsement. If he had not, then it's possible that the carrier could've subrogated against the locator service.
Response 4: Under this policy, an insured must prove they called a locator service. Failure to do so means no coverage. It's very clear—no other details are important. If the insured had proof of using a locator service, there would be coverage, even if the locator service hadn't found the line.
Response 5: The endorsement is very clear on the expectation of using a locator to mark the property before digging. Whether they would have marked the septic tank is irrelevant. The insured had a duty to use the service as a condition of coverage.
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