“The insured operated his business out of one building and used the neighboring building for storage. The neighboring building at one time was a movie theater with all the contents and equipment still in place.

“A fire occurred in the theater and damaged not only the structure but such items as the theater seats, curtain, motorized arm, and other attached items used in the operation of a theater but not in the operation of the insured's primary business.

“Our underwriter states that we only owe for the shell of the theater building and not to replace such items as the seats and other theater-related items. Claims disagrees, saying that we owe to put the insured back in the condition prior to the loss, even if this is not the `business of the insured.

“What is your opinion?

“Signed

Name withheld to protect the innocent”

***

“Dear Mr. Withheld,

“We discussed your question among the analysts here yesterday. We're leaning toward agreeing with Claims, in that we think most of the property you list in your question would be covered.

(I believe you have gotten past the issue of whether the second building is part of the premises. At first, I thought that was where you were going with your question, that the theater building may not be covered premises. However, as you are questioning what is covered, and not whether the loss is covered, I think we can proceed to the issue of coverage.)

“The CP policy covers buildings, including fixtures and permanently installed machinery and equipment. There is no requirement under buildings coverage that the property be such a type as would be used in the insured's operations. That covers the shell, and maybe some of the theater property that are fixtures or permanently installed equipment.

“As to business personal property, the policy covers furniture and fixtures (that would be the theater seats, curtain, etc.) and machinery and equipment. Anything that is furniture, fixtures, machinery and equipment would be afforded coverage.

“I see where your underwriter is getting his theory about business personal property. Provision b.(4) says that all other personal property owned by you and used in your business is afforded coverage. This language is not part of b.(1) furniture and fixtures and b.(2) machinery and equipment. It is meant to cover things like radios, tools, etc. that are owned by the insured and brought to be used as part of the business. If a radio could be said to not be used in the business, then there would be no coverage for that item. But that does not affect coverage for furniture, fixtures, etc.

“So the issue comes down to valuation rather than coverage. The valuation of these items may pose some question, but we don't think that coverage for these items is part of that question.

“Regards,

“Bruce Hillman, JD, Editorial Director

Risk and Insurance Markets

Professional Publishing Group

The National Underwriter Company”

***

“Dear Mr. Hillman,

“Thank you very much. I assume that you do feel there is coverage for the building? I ask because of your comment in the first paragraph that is in parentheses.

“Joe Withheld”

***

“Dear Joe,

“That is probably a more complex question, and one that may involve more legal than insurance coverage professional advice.

“My initial thought is to look at the declarations page of the policy. What is the description of the insured premises and/or property?

“You say there is a firewall between the properties, but is it under one roofline? Is the policy written to cover 112 Main St., but the insured's buildings are actually 112 and 114 (i.e., do they have separate addresses, such that the underwriter was only contemplating coverage on one and not two addresses)?

“Is the square footage listed in the app equal to that of both premises? How is the property described in the application for insurance?

“What I'm getting at is the question of what premises is the underwriter underwriting? Did the agent give enough information? Did the underwriter come back with the right questions?

“You mention that the agent was aware of the situation. Did the appropriate information get to the underwriter? (I'm getting at whether this is a loss covered by the insurance company, or the agent's E&O coverage?)

“I guess I'm asking was everything done right?

“How did a fully-equipped theater building (in operation or not) get insured without anyone at the insurance company knowing what was in it?

“Regards.

“Bruce”

***

“Dear Bruce,

“To your question, the answer is yes. The agent reports knowing that it was for the entire building. There are separate roof lines, but the purchase was for both buildings with the appropriate square footage listed for both buildings.

“To me it is a case where the insured went to the agent to get coverage and the screw-up occurred between the agent and underwriting on the appropriate amount of coverage and type.

“Again, thanks for your help.

“Joe”

***

“Dear Joe,

“I completely agree with your assessment. That's the way we saw it.

“Bruce”

Bruce Hillman, JD, is Editorial Director of Risk and Insurance Markets for the Professional Publishing Group of The National Underwriter Company, in Erlanger, Ky. Questions and comment are invited at [email protected].

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 27, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.