May 13 "Ask an Expert" Question:
"We insure a convenience store with fuel sales on a BOP (BP 00 03 01 06). The store is a 3500 sq. ft. cinderblock construction building with a detached metal canopy over the fuel pumps. We insure the building (as defined in the BOP) for $260,000. The policy was rated in the carrier's online rating environment and we were only given the option of entering limits for Building and Contents. Since the definition of building, as we understood it to be, included all buildings and structures at the premises described in the declarations, we insured the Building for $260,000. The declarations clearly show the premises in question and there is a limit of $260,000 shown for 'building.'
"The insurance company is telling us that they do not want to pay the claim for several reasons: (1) the application makes no mention of a canopy, (2) a limit of insurance is not shown for 'canopy' as a type of property, and (3) if the canopy were indeed included, then there would certainly be a coinsurance issue.
"I realize that no insurance company wants to pay a claim, but that is nevertheless their obligation. I've informed them that their own online rating system does not allow us to break apart buildings and other structures, and only asks for a building limit. 'Building,' as defined in the BOP form, includes all structures at the premises where a limit for 'building' is listed in the declarations. There is clearly a limit shown for building and the definition of building -- including buildings and structures -- is very clear.
"As for coinsurance, the carrier has yet to show us a coinsurance calculation. The carrier has not appraised the building. They do have an estimate for a replacement canopy ($35,000), but they've not valued the building. We would argue that the RC is not more than $80 per sq. ft. for the building, plus the $35,000 for the canopy. At 3,580 square feet, this is $286,400 for the building plus $35,000 for the canopy, for a total 'Building' limit of $321,400. We have an 80% coinsurance requirement, so we should have insured the 'building' for at least $257,120. Our limit of 'building' insurance as shown on the Dec. page is $260,000.
"How do I convince this insurance company to favorably adjudicate this claim? Everything I am looking at indicates coverage for the canopy. Even in a worst-case scenario, we may have a coinsurance penalty of perhaps 5-15%. The insured can live with this. They just want to get the claim closed and move along.
"Your thoughts and advice are appreciated."
May 16 AAE Faculty Response:
Summarizing numerous VU faculty responses, the consensus opinion can be expressed as follows:
The BOP covers "...buildings and structures at the premises described in the Declarations." Specifically the current ISO BOP says:
a. Buildings, meaning the buildings and structures at the premises described in the Declarations, including:
(1) Completed additions;
(2) Fixtures, including outdoor fixtures;
The PREMISES has to be described, but not every individual building or structure. However, because of this broad coverage, you do have to make sure that the full value of all structures is included in the policy limit in order to avoid an underinsurance penalty.
How the ISO BOP treats premises and buildings is materially different from how ISO’s Commercial Property Program treats them. For example, the ISO CP 00 10 requires the individual description of buildings. Their BOP does not. Under the BOP, “Buildings” means ALL buildings and structures on the premises. Therefore, you need to make sure the limit is adequate for the total values.
As for a "coinsurance penalty," the ISO BOP does not have a "coinsurance" provision and never has. Under Loss Payment, there is an "insurance-to-value" provision similar to that in an ISO homeowners policy. The adjuster's claim regarding identifying specific structures and the "coinsurance" reference could lead one to believe that the insurer has not read its own policy.
Our national Technical Affairs committee has pointed this issue out to ISO in the past. Similarly, if business personal property is located in an undescribed building on the premises, the CP 00 10 form does not cover it. However, their BOP policy does cover such property because the BOP requires the description of the premises, not individual buildings. Our TA committee believes that greater consistency in how these forms insure buildings, structures, and business personal property is warranted when accounts move from one type of property policy to another.
May 21 Faculty Member Response:
One of our responding faculty members adds, "We write a large number of convenience store chains and use a proprietary endorsement to clarify what is covered (e.g., canopies, fuel pumps, fuel lines, underground storage tanks, signage, and fuel) and who is responsible for what -- landlord or tenant. It really helps clarify responsibility for both the insured and the insurance company. For example, in your current claim situation, should the potentially significant value of the underground storage tanks be included in the insurance-to-value calculation? I don't know the answer to that one without further information. The precise insurance-to-value amount is a question we cannot answer in this forum."
May 26 Agent Response...Claim Denial Reversed:
The claim was paid and closed. Roughly $27,000 after the deductible. This was better than expected. Happy insured, exasperated but pleased agent. Thanks to all of you who responded, regardless of agreeing with me. We do make a difference, and your opinion will always be useful. You make me a better agent, and help us provide better service to our policyholders, which is the ultimate goal.
Richard Whitley
McDaniel-Whitley, Inc.
Memphis Insurance Group
Last Updated: June 2014
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