Advise & Consult, Inc. | September 17, 2015
Insurance claims are quite often some of the more fiercely debated disputes in law. Those debates are only compounded when they are property damage claims. Knowing what you clients’ rights are and what you can and need to fight for will go a long ways. Knowing how the policy is written so that the policy can be enforced and get your clients the benefits they paid for in their premiums.
Insurance coverage disputes usually aren’t about the main property damage, the debate comes in when consequential damage is claimed as well. Some types of these damages would be lost profits, loss of reputation, or procedures to help prevent the same type of damage to occur again or is just part of the reconstruction process. For example, when damage occurs on an exterior stucco wall and during the repair process damage to underlying undamaged materials may need to then be replaced, but wasn’t part of the initial damage. These consequential damages can be fairly significant and one that insurance carriers will want to avoid paying, but damages that the plaintiff would want to have fixed and included in that property damage claim.
In a blog post by John P. Fischer, that further describes these types of property damage disputes, it states:
The mere fact that those consequential losses are not themselves “property damage” is irrelevant, however, because the coverage promise in liability policies is not merely to pay for “property damage,” but also to pay “damages because of . . . property damage.” The phrase “damages because of . . . property damage” has been held by numerous jurisdictions to include coverage for all consequential damages caused by covered property damage – not just the covered property damage itself. As stated most succinctly in Universal Underwriters Ins. Co. v. LKQ Smart Parts, Inc., 963 N.E.2d 930 (Ill. Ct. App. 2011): “Liability policies cover not only damages for property damage, but damages because of or on account of or by reason of property damage. Accordingly, once covered property damage exists, all consequential damages are covered. In short, even though an item of damage is not covered as property damage, it can be covered if it constitutes a consequential damage flowing from covered property damage.” Id. at 943-44 (emphases in original) (quoting Allan D. Windt, Insurance Claims & Disputes § 11.1, at 11-17 through 11-18 (5th ed. 2007)).
Another context in which we are beginning to see carriers attempt to avoid payment of consequential damages is the context of environmental claims that require not only remediation of existing damage to soil and groundwater, but also prevention of further damage, such as dispersion of contamination from subsurface soil to indoor air. The applicable legal principle is the same – as long as the preventative measures are taken as a consequence of existing “property damage,” those measures constitute covered “damages because of . . . property damage.” E.g., Cinergy Corp. v. Assoc. Elec. & Gas Ins. Servs., Inc., 865 N.E.2d 571, 582-83 (Ind. 2007) (preventative costs incurred in the context of remediating existing property damage are covered because they relate “not to preventing emissions or discharges of environmental hazards that may be produced in the future but to the cleanup costs for prior environmental damage or the containment costs to prevent release of existing hazardous substances”); A.Y. McDonald Indus., Inc. v. Ins. Co. of N. Am., 475 N.W.2d 607, 624 (Iowa 1991) (“[W]e hold that response costs for preventive measures employed after pollution has taken place are incurred ‘because of property damage’ under the CGL policies.”); Diamond Shamrock Chemicals Co. v. Aetna Cas. & Sur. Co., 554 A.2d 1342, 1348 (N.J. Super. 1989) (“There is no novelty to the proposition that in a conventional tort action, once some present injury has been proved, the plaintiff’s damages may include the cost of measures intended to prevent future injury.”)
In sum, if a carrier claims that certain alleged damages are not covered because they are economic in nature, or are geared toward preventing future injury rather than rectifying existing injury or damage, do not accept that assertion at face value. As long as those economic damages or preventative costs are incurred as a consequence of covered property damage, the policyholder has sound arguments, backed by controlling precedent in many jurisdictions, that those types of damages are covered.