It's been awhile since a member sent me a juicy example of subtle policy wording that resulted in an uninsured loss. My thanks to a member in Suffolk County for providing this one. Here is the transcript of our correspondence, edited slightly for clarity. I will leave the name of the carrier and the publisher of its form anonymous.
Question from a Big I NY member: One of my friends has a Dwelling Fire policy with a NY carrier that uses non-ISO forms. He had a tenant who went through a divorce, lost his job and stopped paying rent on the house. The insured started eviction proceedings and had him evicted (which took months.) When they got in to the premises, they found vandalism damage and items removed. The tenant also stopped buying heating oil and when he left, some of the pipes had frozen and broken, causing more damage.
The carrier denied coverage citing Exclusion 4, Dishonest or Criminal Acts, stating that he “entrusted" the property to this tenant who caused this intentional damage.
As a former claims guy many years ago, I remember having an arson case once where the family was going through a divorce and the husband torched the house. We still had to pay the innocent spouse and the bank for the claim. That guy went to jail, but that is another matter!
This seems the same in principle to me. This is an innocent insured who rented to a family. They went through a divorce and the husband snapped and caused damage. He couldn't legally get the guy out until he was formally evicted. What do you think?
Answer: If I've tracked down the correct form, it states –
We do not pay for loss or damage caused directly or indirectly by any of the following; such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. …
4. Dishonest or Criminal Acts-means loss caused by or resulting from any dishonest or criminal act by you, any of your partners, employees, directors, trustees, authorized representatives or anyone, to whom you entrust property for any purpose:
a. Acting alone or in collusion with others; or
b. Whether or not occurring during the hours of employment. This is [SIC] exclusion does not apply to acts of destruction by your employees; but theft by an employee is not covered.
Contrast that with what the ISO Causes of Loss – Special Form, CP 10 30 09 17 says:
2. We will not pay for loss or damage caused by or resulting from any of the following: …
h. Dishonest or criminal act (including theft) by you, any of your partners, members, officers, managers, employees (including temporary employees and leased workers), directors, trustees or authorized representatives, whether acting alone or in collusion with each other or with any other party; or theft by any person to whom you entrust the property for any purpose, whether acting alone or in collusion with any other party. This exclusion:
(1) Applies whether or not an act occurs during your normal hours of operation;
(2) Does not apply to acts of destruction by your employees (including temporary employees and leased workers) or authorized representatives; but theft by your employees (including temporary employees and leased workers) or authorized representatives is not covered.
The ISO form excludes only theft by any person to whom the named insured has entrusted the property; the form your friend bought excludes all dishonest or criminal acts by such a person. It appears to me that the ISO form would cover your friend's loss, but the form he bought does not. I found an Illinois court decision that upheld a denial by an insurance company citing wording similar to that in your friend's form. In that situation, the tenants took off with a lot of property that had been inside the premises. The court concluded that the insureds had entrusted the property to the tenant and that the tenant committed a dishonest or criminal act.
Based on this, it appears to me that your friend's policy does not cover this loss.
Once again, a very subtle difference in policy language. ISO covers all losses other than theft caused by the dishonest acts of someone entrusted with the property; this other form does not cover any of them. The insured is looking at thousands of dollars in uninsured damage.
I'll say it again: Insurance is not a commodity. The only way to know how a policy will apply to a given loss is to review all of its terms and conditions. There's no indication that this insured made the purchase decision based only on price, but readers of this blog know too well that people do that every day. Sometimes, they find out later that they bought the wrong policy.
Postscript: Steven Peiper, an insurance attorney with the Buffalo law firm of Hurwitz & Fine, P.C. and a regular contributor to that firm's always-informative Coverage Pointers newsletter, emailed me an important point that I neglected to mention. Had this been a fire loss, coverage would have applied. The Standard Fire Policy is written into New York Insurance Law Section 3404. All fire coverage issued to New York risks must be at least as broad as that described in Section 3404. The SFP does not have a "dishonest acts" exclusion, so such an exclusion cannot apply to fire losses. Since the loss described above resulted from vandalism, not fire, the insurer was able to exclude coverage.