If your car is stolen and not recovered for months or longer, your auto policy likely pays for the ACV of your vehicle. However, if the thief commits a crime and your auto is confiscated for the months or longer required to try the case, your loss is excluded. Property policies have similar “government action” exclusions. Is it time for a change?
Today I received an email directed to a list of coverage nerds from Tim Wahl, CIC, a Missouri agent. The email included a link to this news story:
In this case, the property owner not only suffered direct damage, but as a result of the shootout (especially the suicide), she experienced a loss in the form of the diminished market value of the home.
This incident reminded me of a claim some years ago where bank robbers barricaded themselves in a small downtown grocery store as the police surrounded them. Long story short, the store suffered significant damage from ammunition rounds and tear gas. The claim was denied by the insurance company, citing this exclusion:
Seizure or destruction of property by order of governmental authority. But we will pay for loss or damage caused by or resulting from acts of destruction ordered by governmental authority and taken at the time of a fire to prevent its spread, if the fire would be covered under this Coverage Part.
In this case, the police were not liable either under a governmental immunity statute. Under these laws, recovery from a governmental authority may be minor or non-existent. These incidents are not common, but they are also not rare.
We have seen the kind of damage to property that can occur from active shooter episodes in recent years. While a relatively minor claim, we saw a homeowner’s boat riddled with bullet holes when one of the Boston Marathon bombers was cornered in the boat.
Historically, this type of exclusion exists to preclude coverage for government-mandated seizure or destruction of condemned property as a public safety hazard or RICO seizures of property. It is understandable and socially desirable for insurers to deny claims for property damage arising from criminal acts of the insured. But for situations like this, innocent insureds have suffered fortuitous losses.
A similar exclusion can be found in auto policies. For example, the ISO personal auto policy excludes:
A total loss to “your covered auto” or any “non-owned auto” due to destruction or confiscation by governmental or civil authorities.
This Exclusion (6.) does not apply to the interested of Loss Payees in “your covered auto”.
I’m personally aware of two claims where vehicles were stolen and later used in the commission of a felony. In one case, law enforcement impounded the vehicle for over a year while the case was tried. The innocent insured was denied compensation by both law enforcement and the insurance company. If the auto was stolen, the insured would have been entitled to compensation…from the standpoint of the insured, confiscation by the police is just as fortuitous of a loss as theft by a criminal.
As you can see, in the exclusion above, an exception is made for an innocent loss payee. So, why not an exception for innocent insureds? If and when the vehicle is released, the insured could perhaps have the option of keeping the monetary settlement or returning it to the insurer in exchange for the vehicle.
What do you think? Feel free to leave me a comment below.
William C. Wilson, Jr., CPCU, ARM, AIM, AAM
Founder of InsuranceCommentary.com
Mr. Wilson retired from the Independent Insurance Agents & Brokers of America in December 2016 where he served as Assoc. VP of Education and Research and was the founder and director of the Big “I” Virtual University for over 17 years.
He is the former Director of Education & Technical Affairs for the Insurers of Tennessee and, prior to that time, he was employed by Insurance Services Office, Inc. He is a graduate of the Illinois Institute of Technology with a B.S. degree in Fire Protection & Safety Engineering.
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