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The insurance industry learns that a cause of damage does not have to change property | Property Insurance Law Team Blog



Judges who write about what insurance contracts mean should read what the insurance industry teaches its adjusters and claims officers what insurance contracts mean. For example, a judge would not learn how to practice medicine by reading cases of medical malpractice. For the same reason, judges and practitioners of insurance law should spend time reading the authoritative material of the insurance industry to learn what insurance contracts are intended to insure.

I thought of this concept after yesterday’s blog, Wisconsin Supreme Court Rules Covid does not cause physical loss or injury. The case cites legislative law on what a cause of injury is without even mentioning an insurance industry publication that teaches adjusters what a cause of injury is.

Property and liability insurance principles 4th edition, is a standard reference book used by thousands of insurance claims adjusters and insurance industry executives, leading to an Associate in Claims Designation (AIC) and Chartered Property Casualty Underwriter Designation (CPCU). Chapter 8.6 of the basic book states:

Reasons for loss of property

One cause of loss (or danger) is the actual manner in which property is damaged or destroyed and includes fire, igniting windstorm, hail and theft. Most causes of loss adversely affect the property and leave it in a changed condition. A fire can turn a building into a pile of gravel. A collision can turn a car into twisted scrap. Some causes of loss do not change the property itself, but they do affect a person̵

7;s ability to own or use the property. For example, lost or stolen property may still be useful, but not by its rightful owner.

The insurance industry’s defense attorneys never cite these books because what they taught their clients was a covered loss before Covid 19 struck would not help their case. This book teaches that “some”, not “all”, causes of loss change property. This is what is taught to property insurance adjusters. The example of a policyholder’s forgetfulness of losing property is a classic example. Loss requires no change when property adjusters learn what “physical loss” means. Judges are misled by insurance defenders about what a cause of injury means and simply repeat incorrect case law, which now replaces what the text in the basic insurance industry teaches.

Harvey Goodman is a third generation real estate insurance adjuster. After reading the blog, he wrote to me and asked when “cleaning” was in any way not an indication of property damage. He mentioned the common cause of smoke loss as the insurance industry only pays cleaning costs to literally wipe away the residue. But if the insurance industry cleans the remnants of Covid 19, is it not covered?

This does not make sense to those of us who have done this to live. Smoke separated from fire is a recognized cause of loss. In many cases, the only thing that is done is to wipe off the smoke from a building. I’m currently in an arbitration proceeding where the insurance company has paid over $ 1.5 million to clear the smoke from a building. The method and cost of wiping down and removing the smoke from this huge warehouse is what is in dispute. Insurance companies will pay for “smoke”, which can simply be wiped off the surface of the building. Simple cleaning is covered if the deductible is met. Why is it different for Covid 19?

While many property insurance policies exclude volcanic activity, many also cover volcanic ash. Often, especially with light volcanic ash, the only thing that is paid is to sweep up the ash and remove it from the property. Depending on the nature of the property and the extent of the ash, this “cleaning and removal” can be quite expensive to almost negligible. Nevertheless, the insurers of the insurance companies think about this danger and its cost all the time. The ash must never change the property except to cover it. Once it has been swept up, you would never know it was there. Still, insurance companies pay regularly for this unusual event.

A study on volcanic ash noted:

A 10 mm volcanic ash fall is likely to cause minor damage to well-built buildings, but the ash must be removed from building roofs and gutters, prevented from damaging sensitive equipment including most electronics, power generation and distribution networks, communications networks, airport runways and roads (where a few mm obscures road markings and makes the surface slippery). The decontamination process may need to be repeated several times to remove most of the ash, or to keep the ash from falling.

For our scenario city with 200,000 people, 10 mm ash falls have a volume of about 1 million cubic meters (say 10,000 truck loads); it’s not just about transporting the ash to another place where it can continue to blow around. The decontamination will require planning. Suitable landfills can be found 20 km outside the city. Dump sites require maintenance so that ash does not continue to blow around.

Cleaning can be expensive. A repeat of Fuji’s eruption in 1707 in Japan, for example, would spread ash over Tokyo and Yokohama metropolitan areas (and elsewhere). The cost of decontamination and removal of ash from urban areas has been estimated to cost more than USD 10 billion (Christina Magill, Risk Frontiers, personal communication, September 2015). The claim cover can be quite limited but the remediation costs will be significant.

Not all of this cost would fall on the insurance companies, but have the reinsurers considered the potential costs? Would the insurances cover the costs of garbage removal and decontamination when there is no or little material damage? After the eruption of Mount St. Helens (USA) In 1980, about 90% of Eastern Washington insurance companies paid policyholders an hourly rate for removing ash from roofs and buildings. Would this practice continue?1

Volcanic ash differs from everyday dust in all buildings and homes. Ordinary dust is a maintenance problem and not a random loss. Ordinary dust occurs and is expected to happen.

No one expected Covid 19 to be in the air of their company and on the surface of their company three years ago. I can tell you from personal experience and invoices, it was not cheap to pay for professionals to clean my offices after a person with Covid 19 was discovered to be in one of my law firms. Why that cleaning is not subject to an insurance claim compared to a plume of smoke from a fire miles away that enters a building and is paid as an insurable cost is sensible. I’m sure an insurance lawyer is trying to help a client not to Pay!comes up with some clever explanation.

Today’s thoughts

Do not let the perfect be the enemy of the good. Lower the bar. To actually spend ten minutes cleaning from a shelf is better than fantasizing about spending a weekend cleaning the basement.
—Gretchen Rubin
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1 Blong, R., Tillyard, C., Attard, G. (2017). Insurance and a volcanic crisis – a story about a (large) eruption, two insurance companies and countless insured. In: Fearnley, CJ, Bird, DK, Haynes, K., McGuire, WJ, Jolly, G. (eds) To observe the volcanic world. Advances in volcanology. Springer, Cham.


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