The Problem: Coverage Denied

The gray area. Typically a client submits a claim to our office, and it’s either liability-based — somebody fell and got hurt — or it’s property-based — a tree fell on a building, and there’s damage. The carrier will go through the insurance policy, review all of the terms as well as the exclusions, and then either come back and say the claim is covered, or if the claim is denied, they’ll cite language right out of the policy as the basis for their denial.

Most of the time, the language that it cites from the policy and the reason for denial are legitimate, and it has to be accepted because there’s no arguing it. The gray area comes when you, as the broker, read the language differently, think that the language was interpreted incorrectly, or the wrong language was cited. When this occurs, we appeal the claim back to the carrier.

This is the exception rather than the norm. Most insurance brokers, I think, will just accept the carrier’s position. Either they don’t read the policy, or they just don’t have the aptitude to make what amounts to a legal argument about contractual language. We’re fortunate in that our claims team includes an attorney, so that’s helpful. 

Cases in point. I have a couple of examples. A condo unit-owner claimed that a noisy door in the common garage area underneath his unit was making the apartment in essence uninhabitable, and it negatively affected his ability to rent his unit. So he filed a claim for property damage, and the carrier denied the claim stating that there was no occurrence, meaning no bodily injury or property damage. But we came back and argued that the very fact that the unit-owner could not rent his unit was due to the fact that the unit became impaired or damaged due to the noise. And that constituted property damage, and therefore the denial should be reversed. Which it was.

In another case, also a condo, there was a toilet clogging and overflowing, causing damage to the interior of an apartment. And the way the bylaws were written, much of the damaged property within the apartment was defined as a common area and was therefore the responsibility of the condo association. The carrier initially denied the property damage claim, stating that the backup in the pipe occurred beyond the perimeter of the footprint of the building. And because of that, based on the policy language, there should be no coverage. 

We came back and argued that just because the plumber alleged that he had to snake the line and found a blockage 100 feet down the line, there was in fact no evidence that anybody, including the plumber, could provide to verify exactly where that backup occurred. It was very possible that in fact the backup occurred within the perimeter of the building, and therefore the claim should be covered. The carrier reversed its position based on our appeal, and ended up paying $18,000 on that claim. If the carrier’s denial had held, that was money that would have come straight out of the association’s pocket.

Know your broker. Co-op and condo boards and their property managers need to know their insurance brokers well enough to know that they will fight and advocate for them if there’s an opportunity to appeal a claim denial. Instead of just accepting a carrier’s response, a good broker looks for a window to make an argument and makes it on the client’s behalf.