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 owe only 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]

Click Next to see the response!

Dear Mr. Withheld,

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

I believe that 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 building coverage that the property be of a type that would be used in the insured's operations. That covers the shell, and maybe some of the theater property, such as fixtures or permanently installed equipment.

As to business personal property, the policy covers furniture and fixtures (that would be the theater seats, curtain, etc.), machinery, and equipment. Anything that is furniture, fixtures, machinery, or equipment would be afforded coverage. I see where your underwriter is getting his theory about BPP. 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 or b(2) machinery and equipment. It is meant to cover things such as 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 not to have been used in the business, there would be no coverage for that item. That does not affect coverage for furniture, fixtures, etc.

The issue, therefore, comes down to valuation rather than coverage. The valuation of these items may pose some question, but we do not think that coverage for these items is part of that question.

Regards,

Bruce Hillman

But that brought about another question…

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 second paragraph.

Joe Withheld

Dear Joe,

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

My initial thought is to look at the declaration page of the policy. What is the description of the insured premises and/or property? You say that 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 application equal to that of both premises? How is the property described in the application for insurance?

What I'm getting at is what premises was 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 what I am asking is whether everything was done correctly? 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

So, what happened next? Click to find out! 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 in which 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 is the way that we saw it.

You're welcome.

Bruce

Bruce Hillman is editorial director, Professional Publishing Division, of the National Underwriter Co. The FC&S Claim Queue is prepared and written by the editorial staff of The Fire, Casualty and Surety (FC&S) Bulletins, the most widely used encyclopedic reference service devoted to insurance policy interpretation and coverage topics. FC&S is published by The National Underwriter Company.