We have a client who has water damage caused by the sprinkler system. The insurance company has granted coverage on the loss; however, they want to hit the insured with a 15 percent vacancy penalty. We believe that the building does meet the definition of “vacant,” but we have reviewed the policy and found an interesting part of the language used. Please see the following:

B. Vacancy Provisions

If the building where loss or damage occurs has been vacant for more than 60 consecutive days before that loss of damage occurs:

(1) We will not pay for any loss or damage caused by any of the following even if they are Covered Causes of loss:

(b) Sprinkler Leakage, unless you have protected the system against freezing;

(2) With respect to Covered Causes of loss other than those listed in Paragraphs (1) (a) through (1) (f) above, we will reduce the amount we would otherwise pay for the loss or damage by 15%.

The insurance company has applied coverage because the building owner attempted to maintain heat in the building—the oil company failed to deliver. The building was vacant and we agree, but since coverage has been applied, we feel that (2) excludes this covered loss from the 15 percent vacancy penalty.

What is your interpretation?

New Hampshire Subscriber

It appears from the policy language you have quoted that the two options available when a building is vacant are to either exclude coverage completely when caused by causes of loss listed in (1)(a) through (1)(f) or to reduce coverage by 15 percent when any other covered cause of loss applies. Since it was determined that the insured attempted to maintain the heat, B.(1)(b) would not apply because it provides an exception if the insured protects the system against freezing, so the cause of loss would fall into the category of covered causes of loss other than those listed in (1)(a) through (1)(f). The 15 percent reduction would apply.