18 Aug Building a Case for Coverage
A remodeling contractor was hired to do work in an apartment building with 70 units. The contractor’s employee accidentally left a master key in the door of an apartment he was working in, and someone stole it. The apartment owner had all the locks in the building replaced and sent the contractor a $14,500 bill for materials and labor. The contractor filed a claim under his CGL policy, but it was denied. The adjustor said the loss did not meet the definition of “property damage.” Was the adjustor correct?
Often, we look at claim denials that, at first glance, seem correct but that may not be supported by the policy language. I think the adjuster should be citing an exclusion rather than a definition. While I don’t think an agent should have a reputation for arguing with the carrier over claims, I do think the agent should be an advocate for the insured when a denial is questionable. Let’s see if we can build a case for coverage.
The CGL insuring agreement states, “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”
Is the employee an “insured”? Insured includes your employees, but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business. The employee is an insured.
Was the employee “legally obligated to pay damages because of “property damage”? This is possibly a legal question. The employee was negligent in leaving the key in the lock. The carrier could require a suit to determine the legal obligation. I would argue that the locks would not have had to be replaced if the employee had removed the key when he entered the apartment.
Was there “property damage”? “Property damage” is a two-part definition. It includes “physical damage to tangible property, including loss of use of that property; or loss of use of tangible property that is not physically injured.” The locks are tangible property that have not been physically injured. Since someone has the master key, he or she has access to all the apartments in the building.
I believe this claim falls under the second definition: “loss of use of tangible property that is not physically injured.” The locks are no longer useful in keeping people out. In other words, the locks have “lost their use.” We have “loss of use of tangible property that is not physically injured.”
It is possible the building owner may have some lock replacement coverage on his property policy using a “coverage enhancement” endorsement. Some companies will add a sublimit for the cost of lock replacement. This type of coverage is more common in homeowner policies.
I believe the adjuster should pay for the replacement of the locks since the damage meets the definition of “property damage” and there are no exclusions that would prohibit coverage. Even if the carrier ultimately denies the loss, at least we have been the insured’s advocate.
What do you think?