Insurance Contract Ambiguity

coverage will provide separate monies for building debris and contents debris. Thus, even though an insured may hit limits under the building debris coverage, they can often segregate the cost to remove and dispose of destroyed contents as well.

Landscaping
Another common extension that is generally overlooked is landscaping coverage. Often, trees and shrubs are damaged as a result of the loss or will be damaged during the course of repairs. Once a landscape bid is obtained, a claim can be made immediately for the loss. Most insurance company adjusters tend to assume that these costs must be incurred before payment is made, relying on replacement cost coverage. Yet the extended coverage for landscaping, unlike debris removal, typically does not include “when incurred” language. And since trees and shrubs appreciate with time, the actual cash value and replacement cost value should be the same.

Interpreting policy language
When reviewing the policy, remember that many words have broad meanings that can expand coverage. Since insurance companies usually write the policies, most courts have held that any ambiguity in an insurance policy is to be interpreted in favor of the insured. Therefore, a little creativity can help when underinsured. If you look at things a little differently, you may be able to create a strong argument to increase your recovery.

One typical scenario is where an insured has exceeded limits on the building, but not the business personal property, or vice versa. There are many items that can easily fit into either category. Fixtures and equipment, for instance, are often specifically addressed under both the building and business personal property coverage. Thus, when the claim is prepared, these items may be claimed wherever they will be most benefi-

cial to the insured. Simply by using the definition in the policy, you can support the placement of these items relative to the claim.

One common scenario involves expediting expenses: If there is an additional cost to expedite the repair or replacement of an item, then that part of the cost may be recoverable under the extra expense coverage in the policy instead of the property coverage.

Another example of creativity coming to the rescue in an underinsured claim comes from a real situation. A few years ago there was a small fire at the campaign headquarters of a U.S. congressman. The office was underinsured, mainly because no one contemplated the cost of replacing build-out items such as carpet, ceiling tiles, and paint when the insurance was purchased.

Most commercial leases require the tenant to insure these build-out items. Businesses that rent office space commonly calculate risk based on their hard goods such as computers, desks, and copiers.

In the case of the underinsured congressman, virtually all of his insurance recovery went to repair

ing/replacing “building” items such as the carpet and painting. In the fire, campaign posters and other literature were destroyed. After reviewing the policy, it was discovered that “valuable papers” were not defined. Some examples were included, but not a definition. The dictionary provided only a very broad definition. So the items were claimed as valuable papers. The insurance company immediately dismissed the argument. However, after we explained our position and supported it with the dictionary definition, as well as some case law regarding ambiguities in insurance contracts, they acquiesced. This is a great example of how ambiguous policy language combined with a little creativity can minimize an underinsured loss.

Coinsurance
A third example of where creativity comes into play while calculating a claim is when the insured faces a potential coinsurance penalty. In those circumstances it may be more beneficial to opt to make an actual cash value (ACV) claim rather than a replacement cost claim as the insured may net more money. This may seem counterintuitive, but if a policyholder is underinsured and they calculate their loss based on replacement cost, they may incur a penalty greater than what they lose by basing their claim on ACV. As a final note, be careful in reviewing and applying the coinsurance provision, as it is sometimes applied incorrectly.

4.Investigate the potential for third-party recovery
Many losses are caused by the negligence of third parties. This can be the result of anything from faulty wiring by an electrician to a defective lamp that overheats. Some losses may not be the result of a negligent person or a defective product but they are magnified by them. For example, a defective smoke detector/sprinkler system may not cause a fire but its