Homeowners' insurance issues following bankruptcy, foreclosure
By FC & S Editors |October 10, 2018 at 12:00 AM
Question: We have a client who had a house fire. He filed bankruptcy on a credit card with a balance of $25,000. The bankruptcy requires that he pay back the debt in monthly installments. We were able to find $12,000 in contents, of purchased items that were for the home from this credit card bankruptcy. The carrier’s adjuster wants these items removed from the content list even though the client is paying it back.
Can the carrier demand removal of these items, which were purchased on this credit card, from the content list? Can they deny the claim if they are not removed?
— Michigan Subscriber
Answer: The insured’s financial status with a credit card company or other creditors has nothing to do with whether the property existed and was damaged in the loss. If the insured bought the property and it was damaged, he is covered for the loss even if he is still paying on it. Otherwise, no one would receive enough coverage on a house, as most are owned by the bank to some extent. There is no clause in a policy that all property must be wholly owned by the insured.
If the items were not damaged in the fire then they cannot be claimed. A claim can be denied if the policy provisions do not cover it, or there is some sort of fraud or misrepresentation on the part of the insured.
Mortgagee clause applied in foreclosure
Question: We insure a large property valued at over a million dollars. The mortgagee foreclosed on the property. Shortly after this, there was a fire and nearly $700,000 in damage resulted.
What is the extent of the obligation of the insurance company to the owner of the property after the mortgage company has obtained foreclosure?
— New York Subscriber
Answer: The insurer’s obligation to the mortgage company is determined not so much by the value of the loss as the amount of debt owing on the mortgaged property. That is the mortgage company’s insurable interest. Presumably, the debt in this case is in excess of the $700,000 loss.
The insurer’s obligation to the named insured owner is the value of the loss limited to the (former?) owner’s insurable interest. And if the owner can show any insurable interest at all, we believe the insurer may be courting legal jeopardy to issue a draft payable only to the mortgage company. In fact, this is so much more a matter of law than of insurance, we would counsel insurance people to leave it to the lawyers.
Debt cancellation and medical expense coverage
Question: Our Insured has a homeowners’ policy (HO 3 10 00) with Med pay coverage.
The policy states, “We will pay the necessary medical expenses that are incurred or medically ascertained within three year.”
The claimant lost control of a chainsaw while helping our insured. The claimant had about $2,500 in emergency room expenses. The claimant was given a charity write-off of the expenses and does not have to pay them.
Should these expenses be considered incurred? The policy does not define “incurred,” and Black’s Law Dictionary does not seem helpful. Your thoughts on the carrier’s obligation would be appreciated. (The charity write off is from a private hospital and to our knowledge has nothing to do with any government payments. It was simply a need-based forgiveness of the debt.
— Virginia Subscriber
Answer: If the hospital wrote off the debt, then the claimant incurred no expense. If funds were due to the hospital, then a claim could be made and paid; since the claimant does not owe the hospital any money, he has not incurred any expense. Merriam-Webster Online defines “incur” as “to become liable or subject to: bring down upon oneself (incur expenses).” The claimant cannot collect $2,500 and keep it, which is what it sounds like he is trying to do.
Advertising injury liability
Question: Our insured hired a construction company to construct a building. They agreed upon the specific price that should be paid as soon as the building was finished. The insured made a partial payment, and refused to pay the full amount, arguing that there were some construction defects.
As a result, the insured was sued by the construction company, in order to collect the outstanding balance, plus late charges and interest. A second allegation made against the insured is that the construction company has been known in the industry for the quality of its work and for its responsibility, and the actions of the insured affected the reputation and image of the company with suppliers and other third parties, and as a result, the construction company earnings have diminished dramatically.
Our insured carries a general liability policy (CG 00 01 12 07). The insurance company believes that under the insured’s policy, there is no obligation to offer defense under this suit. The insurer argues that there is no coverage for the claim, because this is a matter of a debt collection, not a bodily injury or property damage claim. The insured argues that the second allegation triggers the company’s obligation to offer defense under this suit since this could be covered under the personal injury section of the general liability policy.
What is your opinion about this issue?
— Florida Subscriber
Answer: The insured may have a point. The CGL form applies to personal and advertising injury, which is defined as oral or written publication in any manner of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.
So, the question is whether the insured publicized its disputes with the construction company and in doing so, disparaged the company’s services. You need some more facts to see exactly what the insured did or did not do. Publication of the material would mean informing the general public of the disparagement. If the insured is simply not paying the balance and fighting a lawsuit over that, we do not see the insured publicizing its criticism of the company to the general public so the definition of personal and advertising injury is not being met.
But you need to know exactly what the insured did or did not do in this instance to be sure about the CGL coverage or lack of it. Until there is some clarification on this point, the insurer would be wise to offer a defense accompanied by a reservation of rights letter to the insured.