We are dealing with an unusual claim, and would appreciate
your thoughts. Our insureds 2-year old Lincoln MKZ suddenly quit running, so
she had it towed to the dealer. The engine was damaged due to water in the
fuel. The adjusters initial reaction (no written denial yet), was that this
was excluded under wear and tear, and/or mechanical breakdown.
I dont think those exclusions apply to the engine
damage. I believe wear and tear, or mechanical breakdown, is limited to a
failure of some internal part or function of the engine, where there is no other
factor that caused or contributed to the loss, outside of the engine itself. On
the other hand, the engine did breakdown, but Im not convinced that this the
correct decision in this case.
I agree with you. In my view, the adjuster is totally misapplying
the exclusions. For the discussion which follows, assume your insured is Jill,
who has an ISO Personal Auto Policy (PAP). Note that proprietary forms may be
different. Here are the pertinent PAP excerpts.
PP 00 01 01 05
Personal Auto Policy
Part D Coverage for Damage
to Your Auto
Insuring Agreement
B. Loss caused by the following is considered other than
"collision":
1. Missiles or falling objects;
2. Fire;
3. Theft or larceny;
4. Explosion or earthquake;
5. Windstorm;
6. Hail, water or flood;
7. Malicious mischief or vandalism;
8. Riot or civil commotion;
9. Contact with bird or animal; or
10. Breakage of glass.
Exclusions
2. Damage due and confined to:
a. Wear and tear;
c. Mechanical or electrical breakdown or
failure;
Comments
on wear and tear:
(1) In my view, the wear and tear exclusion clearly does
not apply to this loss. The term wear and tear is not defined in the PAP. In
such situations, courts generally look to dictionaries, as well as relevant
case law and statutes. Black's Law Dictionary
(9th) defines wear and tear as "Deterioration
caused by ordinary use."
(2) Since it has been established that there
is an outside element water, which is a covered peril that caused sudden
damage to the engine, the damage was not caused by ordinary use."
Comments on mechanical or electrical breakdown or failure:
(1) I do not believe that these exclusions
apply, either. Like wear and tear, I think the intent of these exclusions is to
deny coverage where mechanical or electrical equipment fails or is damage by
some internal flaw or defect (sometimes referred to in other insurance coverage
forms as latent defect).
(2) Referring to the ten perils listed in the
insuring agreement in the excerpt above, assume that a car caught fire, and as
a result, the wiring and other electrical components of car were damaged. It
would seem totally implausible that an argument could be made that fire (or
related heat) damage to any electrical parts would be excluded under
electrical breakdown or failure.
(3) Likewise, if a car rolled into a lake, or
was inundated in a flood, the insurer should include damage to any mechanical
or electrical equipment in the covered claim. If claims like this were
routinely denied, there seems little value or purpose in having water as a
named peril. About the only coverage the insured would have would be water
damage to the interior fabrics, seats, and miscellaneous trim.
Comments on water damage to the engine:
(1) One of the most common ways water gets
into the engine and related fuel system is through the introduction of water
into the fuel tank. This is often the result of contaminated fuel at a gas
station.
(2) However, personal disputes and pranks
also result in water being poured directly into the fuel tank. I recently saw a
news story about a bitter separation a husband and wife were going through,
where the husband went to his wifes workplace and poured a large amount of
water into the tank of her BMW. This caused over $12,000 in damage to the engine.
(3) An auto being submerged in water, or
simply driving on flooded streets, can introduce water into the engine through
the air filter in the engine compartment. In addition, in certain situations,
water can also backflow into the engine through the tail pipe of the exhaust
system. Additionally, driving in high water can damage the catalytic converter.
(4) Water in the fuel tank does not always
result in immediate damage. Since water is more dense that gasoline, and the
two do not mix (immiscible), the water ends up at the bottom of the fuel
tank. However, as the fuel level gets low in the tank, water can be sucked into
the fuel line from the tank, and possibly move up to the fuel line filter in
the engine compartment. The fuel tank filter, and the fuel line filter, will
eventually become clogged with enough water to prevent fuel from reaching the
cylinders. However, if water does make it into the cylinders, the engine will
stop running, since water is not combustible.
(5) Far more serious damage to the engine can
occur if the water enters through the air filter in the engine compartment,
such as when a wall of water is pushed up by the car as it drives on a flooded
street. This can put a significant amount of water directly into the cylinders.
In normal operation, on the upstroke of the pistons, the fuel/ air mix is
compressed, until the spark plug fires. However, water cannot be compressed,
and the resulting resistance against the piston (hydrostatic lock or
hydrolock) can bend or break the piston connecting rod.
Comments
on putting wrong type fuel (diesel vs. gasoline) into the tank:
(1) Since diesel fuel nozzles are purposely larger than
the filler opening in a gasoline car, this mismatch is less common than the
reverse. But both mistakes can cause damage to the engine. Another common
scenario is when fuel from a small, portable fuel container is poured into the
fuel tank. In most cases, the fuel container is unmarked, and might contain
gasoline, kerosene, or diesel fuel.
(2) In my view, the damage should be covered in the PAP
using the same logic as with water damage to engines. Both are sudden,
accidental actions which damage the engine, which most experts feel are outside
of the actual intent of mechanical breakdown.
(3) One potential issue that often arises with cross-fuel
contamination is that while water is one of the 10 named perils in Other Than
Collision, fuel contamination is not listed. That raises the argument as to
whether Other Than Collision coverage is limited to the 10 named perils, or is
all-risk. Most experts believe the latter, since the introductory language in
the Other Than Collision coverage says, Loss caused by the
following is considered other than "collision." Note it doesnt say that only those 10
perils are considered other than collision.
Comments
on due and confined to:
(1) In PAP exclusion 2.,
note the introductory language (my emphasis added):
Exclusions
2. Damage due and confined to:
a. Wear and tear;
c. Mechanical or electrical breakdown or
failure;
(2) The due and confined to language is important in
claims where wear and tear, or a mechanical or electrical problem, causes
ensuing damage to the auto. For example, if a fuel line has a leak, and the car
catches fire, the due and confined to language is meant to restrict the
exclusion to only the fuel line itself, since fire is a covered peril.
(3) On the other hand, if one mechanical breakdown (water
pump) causes an ensuing mechanical breakdown of another part of the same piece of
equipment (the engine), with no otherwise covered cause of loss being involved,
then a plausible argument can be made for excluding the entire loss.
Industry
literature:
While researching your question, I found a subscriber
Q&A forum in a leading industry resource. These two questions were
particularly relevant. Here is a summary.
(1)
Subject: Water in fuel.
Q. The
engine of our insureds auto was damaged from water that somehow got into the
fuel. The insurer is denying the claim as mechanical breakdown. What is your
view?
A. The
cause of loss was water in the fuel, not mechanical breakdown. Note that water
is included in the 10 named perils under Other Than Collision.
(2)
Subject: Wrong fuel.
Q. Our
insureds husband accidently put gasoline into his wife's new diesel car. There
was significant damage to the engine. The insurer says that this is mechanical
breakdown, which is excluded. Do you agree?
A. No.
This is not a mechanical breakdown loss, since there is a known cause for the
damage outside of the engine itself. In fact, some cases of cross-fuel
contamination can cause an engine fire, which of course is also covered. This
is another example that illustrates that Other Than Collision is not limited to
the 10 named perils.
Additional
resources
Last Updated: May 20, 2016
Updated: March 26, 2024
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