Difference in Conditions Coverage: What Is It and Who Needs It?



“Insureds should seriously consider adding ordinance or law coverage to the DIC policy and make sure that coverage applies for direct damage as well as to income loss.”

...have been fully covered had the higher limits been purchased. The insured testified that the first time it saw the notice of increased limits was when the agent produced it after the loss. The insured sued the agent for not giving notice of the availability of the increased limits and providing an opportunity to purchase the coverage. It was also alleged that the agent was derelict in not informing the insured of the availability of DIC coverage which would have provided coverage for flooding. The court held that the agent was not to blame in the case. It said that the agent did not breach the duty to inform the insured of an increase in flood limits. It also held that the agent’s alleged failure to advise the insured to obtain a DIC policy did not damage the insured because, while a DIC policy can be written excess of flood coverage available from the NFIP, the insured must first purchase the maximum available limits ($500,000) before the DIC policy is triggered. As an aside, it is important to note that currently, the NFIP program does not offer business interruption coverage, and it is advisable that insureds give serious thought to including this coverage when purchasing a DIC policy.

In Archer Daniels Midland Co. v. Phoenix Assur. Co. of New York 975 F. Supp. 1129 (S.D. Ill. 1997), the insured sued its insurers under DIC policies, seeking coverage for increases in its transportation and raw material costs following substantial flooding along the Mississippi River. The Court applied Illinois law and found that the insured’s DIC policies did not provide “sue and labor” coverage for costs of protecting the insured’s grain barges while stalled on a flooded river, where the coverage extended only to “property insured.” (A “sue and labor” clause requires the insured to protect damaged property from further loss once a loss has occurred.) The Court found that only property at scheduled locations met the policies’ definition of property insured, and the barges were not at scheduled locations.

The case of Daniel James Insurance Agency, Inc. v. Floyd West of Louisiana, Inc., 145 F. 3d 1330 (6th Cir. Oh. 1998) involved a flood loss and an allegation that the agent did not ask for extra expense coverage on a DIC policy that was obtained by an excess and surplus lines broker. The agent sought protection under its errors and omissions policy since the agent had...