Analyzing Policy Coverage

With each loss, assignment adjusters must assess whether the policy covers it. The analysis is not only limited to determining whether the peril is covered and the property is covered; it also includes an overview of the entire policy. The insurance policy is the underlying authority in the adjustment process. Interpreting coverage under a policy is a complex undertaking. The policy must be thoroughly reviewed. Where the information contained in the policy does not match the information given in the claim, or where one or more conclusions are possible, the adjuster needs to be methodical and thorough to achieve a fair result. Here we will discuss how to analyze the policy coverage, using a standard homeowners broad form property policy wording, IBC 1153.

Does the Policy Period Cover the Loss?

The declarations page or the coverage summary page of the policy indicates when the policy came into force and its expiry date. The date of loss must have occurred within the policy period to be covered. If the date of loss is not within the policy period, then the loss is not covered and no further analysis is required.

Has the Insuring Agreement Been Satisfied?

To examine what is insured, we must first look at the property to be insured, i.e., is it the dwelling, the detached private structures, personal property or additional living expenses. Once this has been determined, we need to know what this property is insured against, i.e., against all risk of direct physical loss or damage, or against the list of named perils. Under an all risks policy, we look to the exclusions to further define the coverage. Under a named perils policy, we determine whether the peril that caused the loss is included and how it has been limited.

For example: Matthew reports that his dog, a Yorkshire terrier, was stolen from the backyard of his home:

* The policy was in force at the time of the loss.

* The homeowners broad form

policy provides coverage under personal property against direct loss or damage for named perils.

* Theft is a named peril but it specifically excludes loss to animals.

* The loss is not covered.

Are There Any Exclusions or Limitations For the Cause of the Loss or For the Property Damaged?

In the description of the property insured, the dwelling building extends also to permanently installed outdoor equipment on the premises, to outdoor swimming pools and attached equipment and to materials and supplies intended for use in construction, alteration or repair of the dwelling.

For example: Matthew reports the flooring and the walls in the basement were damaged by water when the rusted water heater burst:

* The policy was in force when the leak occurred.

* The homeowners broad form policy in force at the time of the water damage covers the dwelling against all risks of direct physical loss or damage.

* The policy excludes loss caused byrust or corrosion.

* The water heater is not covered as per the Exclusions Section. Loss caused by water is not covered unless the loss resulted from the sudden and accidental escape of water from a domestic water container inside the building.

* The resulting water damage then qualifies as an exception to the exclusion and the resulting water damage is covered.

* As we read further under this exclusion we note limitations to

the coverage. Loss to a system or domestic water container from which the water escaped is not covered.

Have All the Conditions of the Policy Been Satisfied?

The statutory conditions must be satisfied and also any other conditions of coverage. An insured peril may have specific conditions limiting coverage.

For example: Matthew and Maria went on vacation for three weeks in January in the middle of a cold spell. While they were away the radiators froze in their home and burst, causing a considerable amount of water damage:

* The policy was in force when thewater damage occurred.

* The homeowners broad form policy covers the dwelling against all risks of direct physical loss ordamage.

* The policy excludes loss caused bywater as stated under the exclusions section. However, an exception to the exclusion is identified. There is then a further exclusion that applies to freezing during the usualheating season unless the insured has been away for less than four consecutive days.

* It looks like there is no coverage for the loss because the insured was away for a three-week period.

* The loss adjuster must look further in the policy for any conditions.

* The exclusion for water damagecaused by freezing is conditioned by more exceptions. By examining the coverage, we identify two more situations that would qualify such an event to be covered. If the insured arranged for a person to enter the dwelling each day to ensure that heating was beingmaintained or shut off the water supply and drained all the pipes and domestic water containers, then coverage would apply.

* The loss adjuster investigates to determine what arrangements were made before Matthew and Maria went on holidays.

Does the Policy Offer Any Extensions of Coverage Separate From the Main Coverage?

Often policies offer additional coverage that may be identified as “extensions of coverage.”

The extensions could be included in the description of the property insured or within the description of the peril insured.

For example: The insured’s keys are stolen. To replace them will cost less than the policy deductible. The insured is concerned that whoever stole the keys will have access to the house:

* The theft occurred during the policy period.

* The keys are covered under cover-age C — personal property. Theinsured wants to claim for replacing the locks in the house but the insurance policy only covers against direct loss or damage caused by theft.

* The conditions and exclusions are not relevant to this loss.

* In this policy, the lock replacement extension covers this indirect loss without a deductible. The cost to replace or re-key locks on the prin-cipal residence is recoverable up to $500. There is also a condition that applies: the insured must report the theft to the police.

This methodology for analyzing policy coverage is one where each decision leads logically to the next action and each action depends on the preceding answer. Using this decision tree method to systematically approach coverage analysis encourages thoroughness in the process and will help adjusters to achieve a fair outcome in the claim settlement.

This article is based on excerpts from the study material in the Claims Professional Series of applied courses — a core of the CIP Program that helps adjusters learn the functional knowledge and skills required of their profession.