Gather ‘round, young Jedis, for another lesson in why insurance is not a commodity. Today’s tale involves a Homeowners policy, a named insured who complicated matters by not living anymore, some stuff that went missing, and two words.
Our story begins and ends in the burg of Mineral Wells, Texas, where Mr. J.O. Spurlock owned and occupied a home. His Homeowners policy, issued by Beacon Lloyds Insurance Company, listed only him as a named insured. It identified his street address as the “residence premises/dwelling” and provided dwelling and personal property coverage. (Note: Beacon Lloyds dissolved at the end of 2012.)
Mr. Spurlock passed away in early 2009, midway through the policy term. A court appointed Kelly Spurlock as the representative of Mr. Spurlock’s estate. The month before the policy’s expiration, Kelly discovered that some of the personal property was missing from the house. Believing the items to have been stolen, he filed a claim with Beacon Lloyds. The insurer concluded that the insurance did not apply to the stolen property. It denied coverage.
Kelly then sued the insurer and the agent who obtained the policy for Mr. Spurlock. The trial court dismissed the case against both parties, and Kelly appealed. Here’s where the policy language gets interesting.
The ISO Homeowners 3 Special Form, HO 00 03 05 11, contains a “Death” condition which states:
“If any person named in the Declarations or the spouse, if a resident of the same household, dies, the following apply:
1. We insure the legal representative of the deceased but only with respect to the premises and property of the deceased covered under the policy at the time of death; and
2. ‘Insured’ includes:
a. An ‘insured’ who is a member of your household at the time of your death, but only while a resident of the ‘residence premises’; and
b. With respect to your property, the person having proper temporary custody of the property until appointment and qualification of a legal representative.”
However, the Beacon Lloyds policy did not use the ISO form. Its policy had a slightly different “Death” condition, as quoted in the appellate court’s opinion:
“If the named insured dies, we insure:
a. the named insured's spouse, if a resident of the same household at the time of death.
b. the legal representative of the deceased. However, if this legal representative was not an insured at the time of death of the named insured, this policy will apply to such legal representative only with respect to the premises of the original named insured.
c. any person who is an insured at the time of such death, while a resident of said premises.”
Did you catch the difference there? The ISO form covers the legal representative for “the premises and property of the deceased.” The Beacon Lloyds form covered the legal representative with respect to “the premises.” No mention of “the property.”
The appellate court checked dictionary definitions of “premises” and found that the term means “a house or building and the grounds upon which the house or building is located.” Using this as the starting point, the court said:
“None of the above definitions includes ‘personal property’ in the definition of ‘premises.’ Accordingly, we conclude that the plain meaning of ‘premises’ as used in the Beacon policy is unambiguous and does not include personal property. Based on its plain meaning, the undefined term ‘premises’ in the Beacon policy includes J.O. Spurlock's house and the grounds upon which it was located. The Beacon policy insured the legal representative of the named insured only with respect to the ‘premises’ of the original named insured. Given the ordinary meaning of ‘premises,’ we conclude that, upon J.O. Spurlock's death, the policy provided dwelling coverage to Spurlock but did not provide personal property coverage to him, whether the loss of personal property occurred on or off the premises.”
ISO covers “the premises and property”; Beacon Lloyds covered “the premises”. The deletion of two words made the difference between whether this claim was covered or denied. The court ruled that coverage did not apply to the stolen personal property, and it threw out the allegation of negligence against the agent.
I just did a word search of the court’s opinion. Two words that are conspicuously absent from the opinion are “premium” and “price.” That’s because, when a loss occurs, nobody cares about the price of the policy.
Two words. Without them, no coverage. Insurance policies are not all the same. Price is an important consideration, not the most important consideration.
I’ll have more examples in the near future. I don’t know what they are yet, but I know they’re out there. In the mean time, I strongly encourage you to study the products you’re offering. It’s best for you and for your clients.