My renters insurance policy contains exclusions, but parts of the policy appear to contradict each other. Are there situations where an exclusion won’t apply because there were multiple causes of loss? What about a liability claim? If part of the claim is excluded, would you still receive coverage for the claim?
Personal Property Claims with Multiple Causes of Loss
How do we analyze coverage under a renters insurance policy? We define the issue, locate the rule within the policy, apply it, and come to a conclusion. It’s actually a simple and straightforward process in most cases. Below we will highlight each step using “loss of property with multiple concurrent causes” as an example.
Define the Issue: Personal property coverage following a loss with multiple concurrent causes, one or more of which is excluded
The issue at hand is what happens when a personal property claim on California Renters Insurance has multiple causes of loss happening simultaneously (aka concurrent). Let’s assume for a moment that these different causes are equally responsible for the loss. If one of the causes of loss is excluded, will your personal property be replaced?
Locate the Rule: “…Excluded regardless of any other cause or event contributing concurrently to the loss”
The rule can be found in the California HO-4 policy form. Using a Travelers policy form as an example, the rule reads as follows:
We do not insure for loss caused directly or indirectly by any of the following; [Listed exclusions follow, including those for earthquake, mudslide, and earth movement]. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
To restate the rule, if a loss is caused by anything that is excluded, there will be no coverage for the loss. It’s irrelevant which cause of loss came first, or if the perils occurred simultaneously.
Application: Given a Specific Loss, Is There Coverage?
Application of the rule is simple. If a personal property loss is caused by something excluded by the policy language, there will be no coverage for the loss. Coverage (or lack thereof) for a secondary loss is irrelevant because the exclusion is absolute. To apply the rule, we need an example. Since we’re looking at a renters insurance policy in California, let’s use an earthquake as an example;
Bob rents an apartment in an apartment community in San Diego. An earthquake strikes the apartment community, and a pipe in Bob’s building breaks as a direct result of the earthquake. The broken pipe causes significant damage to Bob’s personal property, including electronics and a valuable watch, which has been properly endorsed onto the policy. What portion of this loss is covered?
Conclusion: What Portion of The Loss is Covered?
If Bob has properly endorsed the watch on his policy with the standard HO-61-B Valuable Items Plus endorsement, the watch would be covered at its full replacement cost, up to the value it is insured for under the endorsement. A separate, more limited set of exclusions are written into the endorsement which applies only to items listed under the endorsement such as jewelry and watches. Water damage is covered, and there is no earthquake exclusion to be found in the HO-61-B.
The remainder of the personal property (the electronics) would not be covered, however. While damage from burst pipes is a covered cause of loss under the standard policy form, an earthquake is excluded. The pipe would not have broken and no damage would have occurred if not for the earthquake. The presence of an excluded cause of loss (the earthquake) prevents coverage from applying at all, even though there is a concurrent covered cause of loss which occurred at the same time.
It is possible to endorse a personal property policy with earthquake coverage in California, though specific rules apply to the availability of the coverage. Without so endorsing the policy, losses caused by an earthquake would not be covered even if they also involve another cause of loss. Exceptions may apply for fires and explosions resulting from earth movement, however.
What About Liability Coverage?
It’s often said that the duty to defend is broader than the duty to indemnify. Your liability coverage includes defense coverage, but what happens if there’s a claim for something that isn’t covered, may not be covered, or triggers an exclusion? Your insurer likely still has a duty to defend you against the claim.
Defense coverage doesn’t mean that there is coverage for the loss, and defense coverage is often offered under a reservation of rights letter. This coverage ensures that you are defended against a claim which may or could be paid by the policy, at least until such time as it’s determined without a doubt that there is no coverage under the policy.
In addition, if there’s a liability claim with concurrent causes of loss and only one is excluded, the insurer may offer a partial settlement to settle their obligations under the covered portion of the loss. If the settlement were accepted, this is where defense coverage would end. You may be responsible for the remainder of the loss, but the insurer’s portion of the loss would be paid through the settlement. A duty to defend may exist even where there is no duty for the company to indemnify you.
Renters insurance is designed to offer you broad protection against a wide variety of risks to your personal property as well as liability risks. A number of different types of coverage are included in the policy as standard, and you can extend coverage with a variety of endorsements based on your individual coverage needs.
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