| Q&A of the Week |
Raccoons in the Attic
An Ohio subscriber recently asked the following question:
I have a client that has sustained raccoon damage to his home, including the soffit area. This is a seasonal home and so the insured is often not there. The insured has on several occasions hired a pest removal company and has removed raccoons and attempted to board up their access points. There is some damage to the drywall in one of the ceiling areas and also the smell of animal urine. The insurance carrier has cited the exclusion that "we do not insured loss: Caused by: Nesting, infestation, or discharge or release of waste products or secretions, by any animal." They further cite a Merriman-Webster dictionary that says nesting as being "a place where an animal or insect lives and usually lays eggs or takes care of its young". They go on to say that nesting is when an animal makes your home their home. To make their home, they have an entrance and egress to their home which is considered part of the nesting process. Therefore, the damage to your home caused by the nesting raccoons is not a covered loss under your insurance policy.
Is the insurance company's interpretation correct or it there coverage? I have seen many articles and had many other insurers pay for damage by raccoons as they are not considered vermin, but have not previously seen the exclusion of nesting cited for raccoons. What are your thoughts?
ANSWER: ISO modified the exclusion for animals in the 2011 homeowners form. Instead of excluding just birds, vermin, rodents, and insects, as in the 2000 form, the form now excludes birds, rodents or insects, as well as nesting or infestation, or discharge or release or waste or secretions by any animals. This eliminates the need to define vermin or rodent, and clearly excludes raccoons, bats, squirrels, or any other animal that may move into the attic. Animal is a much broader category than birds, vermin, rodents and insects, and was used in order to eliminate the confusion and attempts to categorize different animals. The loss is not covered. |
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| Litigation Watch |
Recovery for Innocent Third Party
The auto insurer brought an action against the insured, injured driver, and innocent third party seeking a declaration that the policy was void. This case is Citizens United Reciprocal Exchange v. Perez, 2015 WL 4877713.
Perez applied for an auto insurance policy with Citizens United. She chose a basic coverage policy with an optional $10,000 coverage limit for third party bodily injury liability. The insurer required the insured to list all household residents of driving age on the application, but Perez failed to do so. Machuca, the father of Perez's two children, was a resident of her household and if Perez had listed him on the application, the insurer would not have issued the policy due to Machuca's poor driving record.
Machuca, driving Perez's car, collided with Green. Green sustained injuries and filed a personal injury lawsuit against the insured. The insurer denied coverage and told Perez that the policy was void from the outset because she had failed to disclose Machuca on her application. The insurer then filed a declaratory judgment action.
The trial court ruled that the policy could be rescinded and voided. However, the court also ruled that in situations where an insurance policy is voided as a result of misrepresentations made by the insured, innocent third parties (such as Green) are nonetheless entitled to coverage. Moreover, based on New Jersey law, the minimum coverage of $15,000 per person/$30,000 per accident was the standard to which Green was entitled. The insurer appealed.
The Supreme Court of New Jersey noted that the insurer wanted the court to determine whether a basic policy such as the one in this instance permits an innocent third party to recover the minimum standard policy statutory amount or the voided policy limit or nothing at all.
The court said that Citizens United was justified in revoking the policy based on Perez not disclosing material information on her application. The insurer was denied essential information relevant to its assessment of the risk, and ultimately, to its decision to issue the policy. However, the court continued, this does not mean the insurer can escape its liability with respect to innocent third parties.
As to the extent of that liability, the court decided that Citizens United was liable for the $10,000 coverage for which Perez opted when she purchased the policy. The court stated that, under state law, the basic policy with its optional liability insurance, overrode the minimum compulsory insurance amounts. The court pointed out that a basic policy, under state law, mandates no minimum bodily injury coverage but provides that the policyholder may elect to purchase such coverage in an amount or limit of $10,000.
In this instance, Perez contracted for third party bodily injury liability coverage in the amount of $10,000. That option was created by statute and it is part of the comprehensive scheme of auto insurance coverage required of motorists in New Jersey. Given that the statute aims to encourage drivers to seek coverage, the court found that it would be both unjust and contrary to public policy to invalidate and disregard the minimal amount of liability coverage bargained for by the insured. It would also be improper, continued the court, to hold the insurer liable for an amount in excess of that for which it had previously contracted. Therefore, the court ruled that where an insured elects to add the basic policy's optional $10,000 coverage for third party bodily injury in the original insurance contract, the insurer shall be liable to innocent third parties for the contracted $10,000 amount as the minimal amount available under state law, even when that basic policy is later voided.
The judgment of the lower court was reversed.
Editor's Note: The New Jersey Supreme Court rules that even when a policy is rescinded, for such reason as an insured's material misrepresentation in respect of the policy at its inception, PIP benefits may nevertheless remain payable to innocent third parties. In this case, the insured lawfully contracted to purchase $10,000 basic bodily injury liability coverage and that is the amount that is payable to the innocent third party. |
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| Fraud of the Week |
Auto Damage – Washington
AMOUNT: $33,000.00
A Washington man filed a false police report claiming that he was driving and hit a freeway barrier. He submitted claims for more than $33,000 for damage to the auto and dental work. His girlfriend later contacted the State Insurance Department investigators and confessed that she was the driver of the vehicle and that her boyfriend was not with her at the time. However a few years later she reported her pickup truck as stolen, and filed a claim. A month later she confessed that she had taken it in for repairs and was being held due to nonpayment. The gentleman pleaded guilty and was sentenced to three months in jail and ordered to pay $910 in restitution and court costs. The girlfriend's charge of perjury for falsely reporting her truck as stolen will be dismissed provided she completes a diversion program in two years, and pays $700 in court fees.
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