June 17, 2014

Our insured carries a commercial auto policy (garage policy). It has collision and comprehensive coverage. Our insured owns an open lot that is used to park vehicles for long term periods. Within the lot they found a rat infestation and they decided to inspect each and every vehicle they have in the lot. They found that about 50% of the vehicles show signs of rat droppings and rat urine, inside the vehicle engines. As a result they had to clean the engines of those vehicles. The insured decided that in order to prevent further damages, he should hire an expert to fumigate the premises. He also decided to put some kind of preventive pill inside the vehicles in order to avoid future damages.

The insured argues that the insurance company should pay for the following expenses: fumigation of the premise and pills that were placed inside the vehicle to avoid future infestations. He argues that this should be covered because the policy states under the duties in the event of an accident section that the insured should take all the reasonable steps to protect the covered auto from further damage.

The adjuster says that none of the above mentioned expenses should be covered. He understands that both expenses were incurred in order to avoid a new loss, not to prevent further damage.

What is your opinion of this issue?

Florida Subscriber

The insured has an interesting argument but we agree with the adjuster.

The coverage is for damage to the covered autos, not the fumigation of the premises. The garage policy is not going to pay for damages or work done to the premises.

As for the prevention of further loss, the clause states that the insured should keep a record of the expenses for consideration in the settlement of the claim. So, there may be an obligation on the part of the insurer to pay such expenses, but the policy language does not absolutely demand it. Also, the adjuster is right that the clause is for preventing further damage to a car that has been damaged and it is not to prevent future damage that may or may not happen. Insurance is not meant to prevent future damage.

Finally, you say the insured decided he had to fumigate the place and buy the pills. The duties of the insured after a loss include the duty that the insured is to assume no obligation, make no payment, or incur any expense without the consent of the insurer except at the insured's own cost. If the insured did those things without consulting the insurer, he has breached the agreement and the insurer could have a strong basis for a denial of those expenses.

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