Making the Policyholder Whole: Property Insureance Coverage for Both the Damaged and Undamaged Parts of a "Pair of Set"

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...cabinets that matched other cabinets that were destroyed in a flood); St. Paul Fire and Marine Ins. Co. v. Darlak Motor Inns, Inc., No. 3:97-CV-1559 TIV (M.D. Pa. Mar. 9, 1999) (in the absence of the clause, coverage was limited to property “directly damaged” by a fire at a low-budget roadside motel).

The issue may also be affected if a policy lacks the “pair and set” clause but contains the similar “consequential loss” or “consequential-reduction-in value” clauses. These clauses all have the same intent — to extend coverage to the lost value of the undamaged property that is bound to the damaged property. The word “merchandise” in the consequential loss clause, however, may cause the insurer to restrict the coverage to retail store inventory merchandise. But in the absence of any definition, the word should receive a broad reading based on context.

For example, the relevant “merchandise” to a hotel is what it sells — the use of a hotel room— and in that context, the hotel furniture is “merchandise” that is part of a set. This was the holding in Hartwell v. California Ins. Co., 24 A. 954 (Me. 1892), where years ago the court addressed the meaning of “merchandise” in an insurance policy sold to a painter and concluded that the term“has no fixed legal or technical signification” and that for non- merchants, “merchandise” includes items held for use rather than sale — because to hold otherwise would render coverage meaningless. Id. at 954. Similarly, “merchandise” coverage for a hotel would be meaningless if it did not apply to rooms and their contents, including furniture. This result is consistent with the plain meaning of the word “merchandise.”

Black’s Law Dictionary (8th ed. 2004) defines “merchandise” as, among other things, “a movable object involved in trade or traffic … .” Black’s Law Dictionary (8th ed.) at 1008. Hotel furniture obviously fits that definition.

Moreover, the cardinal rule of insurance contract interpretation is that where language is ambiguous, as written or as applied in context, any ambiguity is interpreted in favor of coverage for the insured; or similarly, when there are two reasonable interpretations of the same language, the tie goes to the policyholder. See Jeffrey W. Stempel, Stempel on Insurance Contracts at §§ 4.08, 4.09 (3d ed. 2006) (discussing the rule and citing case law across the country).

Finally, a policyholder might ask to change policy language to address their own anticipated pair and...

These clauses all have the same intent — to extend coverage to the lost value of the undamaged property that is bound to the damaged property.


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