Improper Claim Declinations and the Value of the Agent

This article originally published on Bill Wilson’s awesome Insurance Commentary.

A fire started in a cabinet of a tenant in a building. In addition to the fire damage, there was water damage from the fire sprinkler system, as well as openings cut in the roof by the fire department to ventilate the smoke. It appears that the tenant is responsible for the damage.

The claim was submitted to the tenant’s E&S CGL insurer and the adjuster denied it, citing this exclusion in the ISO policy:


  1. Damage To Property

“Property damage” to:

(1) Property you own, rent, or occupy, including any costs or expenses incurred by you, or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another’s property;

According to the policy language above, there is no coverage for damage to property you own, rent or occupy. So, what’s the problem?


The problem is the selective use of policy language to deny a covered claim. If you continue to read this exclusion in the ISO form, you will come to the following exception {EMPHASIS added]:

Paragraphs (1), (3) and (4) of this exclusion do not apply to “property damage” (OTHER THAN DAMAGE BY FIRE) to premises, including the contents of such premises, rented to you for a period of seven or fewer consecutive days. A separate limit of insurance applies to Damage To Premises Rented To You as described in Section III – Limits Of Insurance.

Continuing in this section of the policy, you will find the following as well [EMPHASIS added]:

Exclusions c. through n. DO NOT APPLY TO DAMAGE BY FIRE to premises while rented to you or temporarily occupied by you with permission of the owner. A separate limit of insurance applies to this coverage as described in Section III – Limits Of Insurance.

This is what we traditionally refer to as “fire damage legal liability” (FDLL) coverage and this insured had a limit on his declarations page of $50,000. While there are better ways to cover the exposure for damage to rented premises, the point here is that the adjuster only cited the exclusionary portion of the policy and left out the exceptions to that exclusion that created coverage.

Why is this? Was this done deliberately and selectively to avoid paying a covered claim? Was it done because the adjuster lacks the minimal knowledge and skill to competently do the job? In either case, there is state law that governs both reasons. Or is there some other reason we can’t possibly fathom? None of the possibilities that come to mind are flattering and the possibility that this could be a deliberate attempt to defraud the insured is troubling.

In my forthcoming book, “When Words Collide: Resolving Insurance Coverage and Claims Disputes,” I devote a large section, with several real-life examples like this, to improper claim declination and reservation of rights letters. (Click here for a $5 discount on the book’s preorder.) For example:

To illustrate a “selective” language denial, a condo owner rented the clubhouse for his child’s birthday party. The property management company required at least $300,000 of liability insurance. Fortunately, this was a coverage inquiry and not a claim denial, though the agent likely made the mistake of posing the question to the underwriting, not claims, department. An underwriter responded that, while his limits were adequate, there would be no coverage under his homeowners policy and that the agent should procure a special events policy for the insured. In the email response, the underwriter cited this liability exclusion:

  1. Arising out of a premises:

(2) Rented to an “insured

The problem with this policy language citation is that it did not include the exception to the exclusion [emphasis added]:

  1. Arising out of a premises:

(2) Rented to an “insured”;

that is not an “insured location”;

The definition of “insured location” includes “Any part of a premises occasionally rented to an ‘insured’ for other than ‘business’ use.” In other words, the clubhouse is an “insured location,” so the exclusion does not apply. It is unknown whether this was an oversight or a deliberate attempt to conceal relevant policy language. The moral for EVERYONE involved is “RTFP!”

In addition, in this section of the book, I discuss Unfair Claims Settlement Practices laws. For example, here is an excerpt of the law for the state in which this claim took place:

Unfair claim settlement practices.—

  1. A material misrepresentation made to an insured or any other person having an interest in the proceeds payable under such contract or policy, for the purpose and with the intent of effecting settlement of such claims, loss, or damage under such contract or policy on less favorable terms than those provided in, and contemplated by, such contract or policy; or
  2. Committing or performing with such frequency as to indicate a general business practice any of the following:
  3. Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
  4. Denying claims without conducting reasonable investigations based upon available information;
  5. Failing to promptly provide a reasonable explanation in writing to the insured of the basis in the insurance policy, in relation to the facts or applicable law, for denial of a claim or for the offer of a compromise settlement;

In this claim, the agent knew that the denial was improper and, when it was challenged, it was immediately reversed. I suspect that a regulatory inquiry should also be made based on the following state law [emphasis added]:

626.611  Grounds for compulsory refusal, suspension, or revocation of agent’s, title agency’s, adjuster’s, customer representative’s, service representative’s, or managing general agent’s license or appointment. The department shall deny an application for, suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, title agency, adjuster, customer representative, service representative, or managing general agent, and it shall suspend or revoke the eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist:

(8) Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transaction authorized by the license or appointment.

This is yet another example of the value of having an agent, especially an independent agent, who will advocate for a customer. Agents…remain vigilant!


Click here for off on When Words Collide Preorder

About Bill Wilson

William C. Wilson, Jr., CPCU, ARM, AIM, AAM is the founder of He retired from the Independent Insurance Agents & Brokers of America in December 2016 where he served as Assoc. VP of Education and Research and was the founder and director of the Big “I” Virtual University for over 17 years. He is the former Director of Education & Technical Affairs for the Insurors of Tennessee and, prior to that time, he was employed by Insurance Services Office, Inc. He is a graduate of the Illinois Institute of Technology with a B.S. degree in Fire Protection & Safety Engineering. Bill was a licensed insurance and surplus lines agent, and his professional affiliations have included past president of the Middle Tennessee Chapter of CPCU, member of the board of directors of the national CPCU society, PMLG of the Honorable Order of Blue Goose, International, member of the Independent Insurance Agents & Brokers of America (IIABA) National Education Committee, member of the Certified Insurance Service Representative (CISR) National Advisory Committee, member of the National Underwriter FC&S editorial board, member of the Society of Insurance Trainers and Educators (SITE) and its SITE Journal editorial committee, member of the National Writers Association, chairman of the Tennessee Insurance Commissioner’s Education Advisory Committee, member of the Middle Tennessee State University Insurance Liaison Committee, and member of the Nashville State Technical Institute’s Business Management Advisory Committee. He has served as a trainer and speaker for various organizations, including the Independent Insurance Agents & Brokers of America and 43 of its state affiliates, the CPCU Society national convention and chapter programs, the National Association of Insurance Women (NAIW), the Southern Agents Conference (SAC), the Risk & Insurance Managers Society (RIMS), the International Risk Management Institute (IRMI), and the Society of Risk Management Consultants (SRMC). Bill has conducted hundreds of technical seminars, workshops and convention presentations—from Hawaii to Maine and Alaska to Florida—as well as programs on time management, presentation and public speaking skills, seminar development, and many others. He has been the top-rated presenter at several CPCU National Conventions and his programs are always highly rated by attendees. He has presented seminars or webinars to as many as 5,000 attendees in a single session. He was the recipient of the IIABA L.P. McCord National Education Award for having the #1 ranked state insurance education program in America and has won six other national education awards, including the George M. Gottheimer Memorial Award which is presented periodically to a CPCU Society member who has made an outstanding contribution to the field of insurance education, risk management or insurance consulting and, most recently, the Jeff Yates Lifetime Achievement Award which is the IIABA’s highest honor for nonagents. Bill has researched, developed, written, and published dozens of technical articles, manuals and CDs/audio tapes, and has authored articles in business and industry trade periodicals such as Presentations magazine, American Agent & Broker magazine, Independent Agent magazine, Tennessee Insuror magazine, Tennessee Business magazine, the CPCU Journal, CPCU Interest Group newsletters, and the SITE Journal. He has been quoted as an expert in a number of mainstream publications, including Readers Digest, Kiplinger’s, and Money magazines and the Wall Street Journal, and he has been cited as an expert resource/interviewee for local television and radio media. He has also served as an expert witness in litigation. According to Nashville NBC television affiliate WSMV, “Bill Wilson is an expert when it comes to insurance.” Dr. William T. Hold, president of the Society of Certified Insurance Counselors in Austin, Texas has said that, “Bill Wilson is recognized by his peers as one of the premier insurance educators in America.” Bob Rusbuldt, CEO of the Independent Insurance Agents & Brokers of America says, “Bill Wilson is the nation’s foremost leading expert on form, coverage, and technical issues.” Bill now blogs on insurance industry issues at and delivers keynote presentations in conjunction with his consulting practice. He is also working on several book projects in addition to playing lead guitar with the band The Old Dogs. His first insurance book, tentatively titled “When Words Collide: Resolving Insurance Coverage and Claims Disputes,” is scheduled for publication in late spring or summer 2018.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.