A nail salon client with a business owners policy had a covered water damage loss that damaged tenant improvements and betterments (TIB)—specifically, pedicure platforms, which the insured installed and paid for. While the carrier is covering the water damage to the platforms, it's refusing to pay the other restoration costs associated with this claim.

The claims department says that because the tenant-installed platforms form a part of the building, the restoration expenses to remove the water and mold should be paid by the landlord's policy. Our insured has a duty to protect their business personal property from further damage in the policy. Now, the insured is in collections for more than $12,000 due to the carrier's failure to pay this portion of the claim. 

Q: Are restoration costs for a covered water damage loss also covered by a BOP?

Response 1: Review the tenant's lease to see what the tenant's legal responsibilities are. If the tenant lease requires the tenant to pay for the other part of the loss, then the insurer's argument is incorrect.

Response 2: First of all, you need to review the lease to determine who is responsible for what. Next, it's not clear from your description whether you're looking for business personal property or TIBs, which are not personal property. 

And finally, the insurer's position seems inconsistent if this is, in fact, a "covered water damage loss." It makes sense to expect coverage for cleaning up water from the property that's covered by the policy but cleaning up water from the overall property is another matter. 

Response 3: Why do you believe the insurance company has a contractual obligation to pay? 

Here is an excerpt from the policy:

E. PROPERTY LOSS CONDITIONS

3. Duties In The Event Of Loss Or Damage

d. Take all reasonable steps to protect the Covered Property from further damage by a Covered Cause of Loss. If feasible, set the damaged property aside and in the best possible order for examination. Also keep a record of your expenses for emergency and temporary repairs, for consideration in the settlement of the claim. This will not increase the limit of insurance.

I do not interpret this as a contractual obligation to pay. It says: “for consideration."

Response 4: Unless there is something specifically excluding these expenses, they should be covered as part of the cost to replace the property. If the property itself is covered, then I don't see how the insurer can deny these necessary expenses without insurance contract language expressly releasing them from this indemnification obligation.

If the carrier's position is truly one of interpretation, it's doubtful a bad faith claim would be successful and most attorneys probably wouldn't be interested in a $12,000 lawsuit. However, as a matter of equity, the insurer should pay the claim and then revise the policy language to clearly express its intent of not covering such remediation costs.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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