| Q&A of the Week |
Computing the Coinsurance
An Illinois subscriber recently asked the following question:
We have claim for loss of stock on a form with a blanket coverage limit of $150,000 and 90 percent coinsurance. Part of the damaged completed stock was sold but not delivered. We believe the stock sold but not delivered would not be included with the total value to compute the coinsurance. Is this correct?
ANSWER: The stock sold but not delivered would be included in the total for computing the coinsurance unless your form contains specific exclusionary language for this type of property. The ISO Building and Personal Property Coverage Form, CP 00 10, values such property at selling price less discounts and expenses the insured would otherwise have had, so that is the amount that would be included in the coinsurance calculation.
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| Litigation Watch |
Known Circumstances Exclusion Examined
The insured brought an action against its insurer seeking defense costs and indemnity under a directors and officers liability insurance policy. This case is Clark School for Creative Learning, Inc. v. Philadelphia Indem. Ins. Co., 734 F.3d 51 (1st Cir. 2013).
The Clark School is a non-profit, independent K-12 school and was struggling financially. The Valentis, parents of children that attended the school, donated $500,000 to the school, based on a promise by the school to convey a security interest in the land and to use the funds to construct a new facility for the high school. Later, the Valentis sued the school for failure to follow through on its promises.
The school notified its insurer, Philadelphia Indemnity, of the lawsuit, but the insurer denied coverage, stating that the costs associated with the Valentis' lawsuit were losses excluded from coverage by the known circumstances exclusion. The school defended itself and ultimately settled with the Valentis. The school then filed this action seeking indemnification for the costs of defending itself and in settling the lawsuit..
The U.S. District Court ruled in favor of the insurer, and this appeal followed.
The U.S. Court of Appeals noted that the parties both agreed that the losses would be covered except for the known circumstances exclusion. So, it is the interpretation of that exclusion that was at issue. The exclusion precludes losses based upon, arising out of, or in any way involving any matter, fact, or circumstance disclosed in connection with notes in the financial statement. One matter disclosed in the notes pertains to the gift given by the Valentis. The court said that the loss and defense costs certainly involve that gift since the loss and costs were incurred in defending and settling litigation about that gift. Thus, the plain language of the known circumstances exclusion excludes from coverage the losses from the lawsuit brought by the Valentis about their gift. |
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