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If it’s not broke, it’s not covered

If it’s not broke, it’s not covered

If it’s not broke, it’s not covered
January 25
10:00 2017

If it’s not broke, it’s not covered

The Flaums proudly displayed their Renoir in their living room for more than30 years. They insured it for $350,000 using a fine arts endorsement on a homeowners policy purchased from Great Northern Insurance. In 2008, when they attempted to sell it they discovered it was a fake. Because their endorsement provided all risks coverage, they filed a claim with Great Northern for $525,000 due to loss of value.

Great Northern denied the claim because the painting had sustained no direct physical damage.

Here is how the appellate court ruled.

The Flaums paid $50,000 for a painting, believed to be a Renoir, in 1976. It hung in their home and, in 2005, was insured under a fine arts endorsement attached to a HO policy issued by Great Northern Insurance (Northern). The Flaums paid more than $3,500 in annual premiums for the endorsement which, at last renewal, listed a value for the painting at $350,000.

In 2008, the Flaums attempted to sell the painting via an auction. The auction house later declined to sell the painting and the Flaums were told, verbally, that the painting was not authentic. The Flaums, in years past, had received information from a different source that the painting was authentic but, again, the information was not provided in writing.

Relying on the auction house information, the Flaum’s filed a claim of $525,000, alleging loss of value of their painting. The insurer declined the claim on the grounds that no physical loss occurred under the fine arts coverage. The Flaums sued and Northern countered with a request of summary judgment that no obligation to provide coverage existed.

The court reviewed the Flaums’ argument that the policy language indicated “all risks coverage” and that the insurer had accepted the painting as authentic when it agreed to insure the property, including the acceptance of renewal premiums. The insurer countered by pointing out that the policy required a valid loss to involve physical loss or damage and that the painting was returned and hung, without any physical damage, in the Flaums’ residence. The insurer’s position was that, while the Flaums were victimized by possible fraud or forgery, they did not suffer an actual loss or loss of value as the painting was not a Renoir.

The court agreed with the insurer’s argument and granted its motion to dismiss.

Mitchel Flaum and Constance Flaum, individually and as Trustee of the Trust u/w/o Erna Stern f/b/o Constance Flaum, Plaintiffs. v. Great Northern Insurance Company and Chubb Group of Insurance Companies, Defendants SupCt, Westchester County, New York Slip Op. 20253. Court of Appeals of Kansas June 24, 2010.

What is “all risk” coverage?

The term “all risk” is no longer used in Insurance Service Office (ISO) coverage forms because it suggests unlimited coverage which can lead to claims, such as the one above. Instead, the ISO Fine Arts policy and other personal and commercial lines coverage forms protect against direct physical loss or damage. This very broad coverage is then limited by exclusions or limitations that apply as they are found in the coverage form.

Read the PF&M analysis of the ISO Personal Lines ISO Fine Arts Form

Coverage under the ISO Fine Arts Form is a type of inland marine coverage. It covers objects of fine arts against direct damage. Besides separate coverage, protection may be written as an endorsement to a Homeowners policy.

Inland marine coverage can be purchased using this form or combined with other types of items under a personal articles floater.

Related Articles:

ISO PM 00 09–Personal Articles Standard Loss Settlement Form

Fine Arts, Additional Considerations

Hobbies – Hazards and Opportunities.



The schedule has space to select coverage for the following classes of property:

  • Unscheduled Property – Blanket Insurance

Note: This is only for low valued items because the maximum payment is $500 per item and cover is based on the actual cash value of the item.

  • Scheduled Property

The form has additional space for specifically listing items and to indicate whether breakage coverage applies and the type of settlement option that applies.

Related Article: Common Policy Provisions

A. Property Covered

Fine Arts Form coverage applies globally to all items listed as covered property (which must be owned by the named insured.)

  1. Scheduled and Unscheduled Fine Arts

Regardless whether protection applies specifically or on a blanket basis, items classified as fine art are subject to the following:

  1. Coverage applies only to items of fine art that are owned by the named insured and:

(1) (2) The applicable premium that appears in the schedule is based on the information the named insured supplied on that property’s location

(3) If any covered items are moved from or to the listed location, it may only occur if the items are properly handled (packed and unpacked) by competent personnel.

In other words, losses involving any fine arts might be voided if the loss circumstances involved either unlisted locations or improper handling.

  1. This property class applies to the following private, as opposed to commercially-oriented:

(1) Drawings (refers as well to etchings, lithographs, paintings, pictures or tapestries)

(2) Windows made of art glass

(3) Legitimate art work (includes, but not limited to antique furniture/silver, bric-a-brac, porcelains, rare books [including manuscripts], rare glass, rugs, and statues [bronze or marble].

(4) Other property that qualifies under this class is other rare items that have measurable artistic merit or historical value.

  1. Newly Acquired Fine Art

An important coverage benefit of the Fine Arts form is the automatic coverage for newly acquired items. Coverage is provided subject to the following:

  1. The automatic limit is 25% of the amount of insurance that appears for scheduled fine arts.
  2. The newly acquired property feature is particularly helpful since persons who schedule coverage are likely to be persons who collect higher-valued property. This coverage feature allows such persons reasonable time to remember to report their new property and, most importantly, have their coverage adjusted. It is a condition that coverage ceases on a newly acquired item if it is not reported within 90 days (or at the end of the policy period if that arrives first). The named insured is also required to pay any necessary, additional premium for the new acquisitions as of the date they are secured.

B. Property Not Covered

Fine Arts Form coverage is inapplicable to a number of situations. Ineligibility under this class occurs according to who, effectively, owns or controls such property. Specifically, disqualification extends to the following instances:

  1. If it is contraband or is involved in any form of illegal activity, it is disqualified as eligible, covered property.
  2. Fine arts held by an art gallery, art institution, auction house, art dealer or which is on public display in a room or museum. Ineligibility applies when such property has existing coverage under the applicable party having custody.
  3. Fine art that is on exhibit at fairs or at expositions (national or international). However, such property is still eligible if the personal articles policy lists the location as a covered location.
  4. Fine art that is owned by and insured on the behalf of government authorities (County, Federal, Municipal or State).

C. Perils Insured Against

The ISO Fine Arts Form protects against all forms of direct, physical loss. However, it does not insure against loss or damage caused by:

  1. Wear and tear, gradual deterioration or inherent vice
  2. Insects or vermin
  3. Repairs, service or maintenance (such as restoration or retouching.
  4. Breakage that occurs to art glass windows, bric-a-brac, glassware, marble, porcelains, statuary and similar articles.

An exception is made to breakage loss when it is due to any of the following:

  • Fire or lightning:
  • Aircraft, collision or explosion
  • Earthquake, flood or windstorm
  • Malicious damage or theft
  • Conveyance derailment or overturn

D. Deductible

This insurance is subject to the policy deductible that appears on the declaration page.

E. Options

The ISO Fine Arts Form offers additional coverage as options that supplement its base coverage. The following options are in effect if the policy shows indication that they have been selected either in the declarations or elsewhere.

  1. Breakage of Fragile Articles Coverage for Fine Arts

When this option is selected, the breakage limitation does not apply to described articles where a dagger mark is printed next to those articles.

  1. Windstorm, Hurricane or Tornado Exclusion

When this option applies, all items within the fine arts property class are stripped of protection against severe wind loss (windstorm, hurricane or tornado). The exclusion applies to both direct and indirect severe wind loss and is unaffected by the location of the property.

Finding the exclusions

Every policy has a section called “exclusions” but it is very important to never stop reading there. Exclusions or exclusionary language can be found in any part of the policy. One of the most important but often overlooked places to find exclusions is in the Definitions Section.

Below is the Definitions Section in the PF&M Analysis of the HO 00 03-Homeowners Policy


This portion of the Special Form policy defines the terms that are critical to understanding how the policy responds to coverage situations. The following is a summary of the defined terms that, throughout the policy, appear in quotation marks:

  1. “You” and “your”

These are used in the policy to refer to the “named insured” that appears on the policy’s declarations. “You” and “your” also extend to the named insured’s spouse, but only if he/she lives in the same household.

Example: Joe and Tanya have an HO policy effective June 1, 2014 to June 1, 2015. The policy shows Joe on the policy as the named insured:

Scenario 1: On July 15th, Joe and Tanya both live at the address that appears on the HO declarations. At this point, both Joe and Tanya are both named insureds.

Scenario 2: On September 29th, Joe is still at the address that appears on the HO declarations. Tanya, fed-up with her marriage, now lives in an apartment on the opposite side of town. At this point, the term “you” and “your” no longer apply to Tanya since she doesn’t live at the described residence.

“Our,” “us” and “we”

These three terms are used as references to the company providing the homeowner policy.

  1. The HO 3 Special form policy also makes use of the following, defined terms:
  2. “Aircraft Liability,” “Hovercraft Liability,” “Motor Vehicle Liability” and “Watercraft Liability”

“Aircraft Liability,” “Hovercraft Liability,” “Motor Vehicle Liability” and “Watercraft Liability” refer to legal liability for “bodily injury” or “property damage” that is related to the use or ownership of these items. Such liability would also encompass loss involving the following:


Unloading or loading a vehicle or craft Vehicle or craft operation Maintaining (including repairing) a vehicle or craft
Vehicles or crafts that belong to any person defined as an insured An insured’s negligent supervision related to vehicle/craft An insured permitting another party to use a vehicle/ craft (entrustment)
An insured’s vicarious liability related to vehicle/craft

The vehicle and craft definitions go further, describing the following:

Aircraft – refers to devices that are used or designed for flight. It does not include model or hobby aircraft that is not intended (designed) to carry people or cargo;

Hovercraft – refers to vehicles that are powered by force of cushioned air; naturally, such devices have motors. They must also be designed to travel over the ground, at ground level. This means a self-propelled motorized ground effect vehicle and includes, but is not limited to, Flarecraft (brand of air-cushion device) and other air-cushion vehicles; and

Watercraft – refers to devices that operate on or in water. Movement can be powered by wind, motors or engines.

Related Court Case: “Aircraft Definition Held Not to Include a Parachute”

Motor Vehicle – refers to separate definition that appears later in this section.

  1. 2.“Bodily injury”

This term refers to sickness, disease, or bodily harm, and includes any resultant death.

  1. “Business”

In earlier editions of the homeowners policy, business meant any activity having the goal of generating personal income. This policy instead defines the term to apply to a variety of situations. “Business” refers to a trade, occupation or profession, EVEN when such activity occurs only on a part-time or occasional basis. The policy’s definition does exclude the following instances from its business definition:

  • Activities that only reimburse volunteers for expenses that are directly related to the activity
  • An insured who provides home day care to his or her relatives

Related Court Case: Babysitting Activity Held Subject To Liability Exclusion For Business

  • Mutual exchanges of home day care services

Example: Josie McBakerie volunteered to run her church’s annual fish fry. The program runs for a month and it is very popular. Josie was sued by another church member whom Josie recruited to operate a hot oil fryer. The church member was injured when Josie fell against him and the person’s hand fell into the hot fryer. The insurance company adjuster told Josie that she was not covered by her homeowner policy after he discovered that Josie received over two thousand dollars from the church’s treasurer for her work on the fish fry. Later, Josie explained that she shops and pays for all of the food and supplies used in the fish fry herself and then gets reimbursed by the church’s treasurer. Josie’s total expenses were more than $2,600. The adjuster then says that, since the money was just for fish fry expenses, Josie would be covered for the loss.

The policy’s “business” definition also makes an exception for activities that involve modest amounts of income. Specifically, an activity is not considered to be a business if it generates no more than $2,000 in compensation during the 12-month period before the homeowner policy period.

Note: This refers to the value of compensation, NOT merely cash. So the details surrounding an activity greatly affect how the activity is classified.

Example: Scenario 1: Jim Surepay has a regular job but he is a genius with a video camera and he often makes extra money videotaping weddings, birthday parties and similar events. Jim bought a Special Form homeowner policy on 10/1/2013. In the 12 months before the policy began, Jim made $1,950 taping events. The following year, Jim made well over $3,000. Since the $3,000 was made in the 12 months before the RENEWAL date of 10/1/2014, does it qualify as a “business”? In this case, the activity changes from a non-business to a business situation from the policy inception period to the renewal period.
If an activity exceeds $2,000 in any 12 months before a policy period, does it retain its status as a business forever?

Example: Scenario 2:Let’s revisit Jim Surepay. Remember that Jim makes extra money videotaping weddings, birthday parties and similar events and that Jim bought a Special Form homeowner policy on 10/1/2013. However, his earnings are different. In the 12 months before the policy began, Jim made $2,450 taping events. Earnings in the following year are very slim and Jim only makes $1,200. Since the $2,450 was made in the 12 months before the INCEPTION date of 10/1/2013, does it qualify as a “business” for renewal periods even when it generates less than $2,000 income in the period prior to the renewal dates? From the policy wording’s inclusion of the phrase “for the 12 months before a policy period”, a given activity’s status may change from one policy period to another based on the volume of compensation.

Does the reference to total income include “non-monetary” compensation?

Example: Scenario 3: This time, in the 12 months before his homeowner coverage began; Jim made $1,850 in cash for taping events. However, one client received two video cameras as wedding gifts so he “paid” Jim by giving him one. The camera had a retail value of $1,395. Does this combination of payments qualify his taping as a “business” for the following policy year?

Does the reference to total compensation take gross or net receipts into consideration?

Example: Scenario 4:Let’s look at Jim Surepay again. In this instance, in the 12 months before the policy began, Jim made $2,250 in cash for taping events. However, Jim’s regular job puts him in a high tax bracket and his net income for taping is only $1,790. Since his net income is less than $2,000 does it qualify as a “business” for the following policy year?

Is the reference to total compensation in the 12 months before the inception date affected by the basis of collecting income?

Example: Scenario 5:Let’s look at Jim Surepay once again. In this instance, in the 12 months before the policy began, Jim earned $2,250 in fees for taping events. However, Jim gives his clients as long as 60 days to pay and, while he EARNS more than $2,000 in the 12-month period before the policy, he receives less than $2,000 in cash (collecting another $500 in fees AFTER the policy inception date). Since his cash income is less than $2,000 does it qualify as a “business” for the following policy year?

These issues are ones that will likely only be addressed when a loss occurs and then, the applicable insurer may be as confused as the insured over what qualifies as a business.

  1. “Employee”

This term refers to a person whose duties involve tasks that are NOT performed by a “residence employee” AND who either:

  • works for an “insured” on a direct basis, or
  • works for an “insured” through a leasing arrangement between an “insured” and a company that leases employees.
  1. 5. The Special Form homeowner policy considers all of the following to be insureds (with notes on any exceptions):
  • You

(refer to separate definition)

  • Your relatives if residents of “your” household

(meaning relatives who live at the insured location with the named insured)

  • Persons under the age of 21 residing in “your” household and in “your” care or in the care of “your” resident relatives

Note: Such persons must BOTH be younger than 21 AND have a named insured, his or her spouse or a relative of the named insured/spouse as their caregiver.

The definition of insured includes persons who are residents of the named insured’s household who are full-time students. In order for a full-time student to qualify as an insured, he or she must either be younger than 24 years of age and be related to an insured OR be younger than 21 years of age and be in the care of someone in the named insured’s household.

The following persons are insureds, but ONLY regarding section II, the liability portion of the homeowner policy:

  • Any party having legal responsibility for either animals or watercraft that is eligible for coverage under the homeowner policy.

Examples: Nancer Editbee’s home is insured by an ISO Special Form policy. Let’s look at whether the following are insureds under her policy:

  • Nancer’s 12 year old neighbor who walks Nancer’s dog (yes, an insured)
  • Frank, who rented Nancer’s RV for the weekend (no, not an insured – due both to rental and type of property)
  • Jeri, a stranger who stole Nancer’s cat (no, not an insured)
  • Paul, a friend from work who borrowed Nancer’s canoe (yes, an insured)


Related Court Case: Animal Liability Exclusion Stands As Written

However, anyone in possession of an insured’s watercraft or animal is denied insured status if any business purpose is involved.

  • Any person working  for an insured while operating a motor vehicle that qualifies for homeowner coverage,
  • Any person who has the insured’s permission to use an eligible motor vehicle, but only while on the insured premises.

Examples: Tom Kinpushion’s large home (on four acres of land) is insured with a Special Form homeowner policy. Let’s look at whether the following are insureds under his policy:

  • Tom’s visiting childhood friend who hits Tom’s neighbor while driving Tom’s car out of his garage (no, not an insured)
  • Tom’s neighbor, Pete, while using Tom’s lawn tractor in his (Pete’s) lawn cutting service (no, not an insured)
  • Tom’s other neighbor’s daughter Nikki whom Tom hired to cut Tom’s 4 acres (yes, an insured)
  •  Tom’s son while using his electric wheelchair at the nearby grocery store (yes, an insured)

Related Court Case: “Automobile Exclusion Held Not Applicable To Liability Arising From Vehicle In Dead Storage”

The 05 11 edition of the Special Form policy’s definition of insured continues using a clarification. Whenever the word “insured” immediately follows the word “an,” the phrase refers to one or more “insureds.” In other words, an “insured” means one or more persons who have covered status under the policy.

  1. “Insured location”

This term refers to a variety of circumstances that includes the following:

  • The residence premises (please refer to the discussion of this defined term below).
  • Parts of other premises or structures that are used by an insured as long as these locations are shown on the policy declarations page OR have been acquired by the insured as a residence during the policy period.

Example: Annie’s home is covered by a Special Form policy. Annie also owns the lot that is next to her home. That adjacent lot contains a large garage. The garage was added to Annie’s homeowner policy by a separate endorsement. This garage is an insured location.

  • Any premises that is related to a property that is covered by a Special Form policy AND which is used by an insured.
  • A premise that IS NOT owned by an insured but is an insured location while it’s used by an insured as a residence.

Example: A hotel room while reserved and used by an insured.

  • Vacant land that is owned by or rented to an insured EXCEPT farm land.
  • Land that contains a structure that will eventually be an insured’s (1 through 4) family residence.

Note: The building has to be for the insured’s residence. Land where an insured is building a residence that he plans to rent to another party would not be an insured location.

Other situations that qualify as an insured location include:

–       An insured’s individual or family cemetery plots or burial vaults.

–       Part of a premises which is rented  and used by an insured but only if for non-business purposes


Scenario 1:Carson Prairie has a home insured by a Special Form policy. Carson is an alumnus of GardenView College. Every August, Carson rents his old dormitory room. He uses the time to recharge his batteries from his full-time job as an owner of a Pet Repo Service. The old dorm room is an insured location.

Scenario 2:Let’s change something in the above situation. Again, Carson Prairie, the GardenView College alum, rents his old dormitory room every August. However, instead of for vacation and relaxation, he uses the room as a location to publish an online sports newsletter about GardenView to which he sells subscriptions to other sports-minded alumni. Besides the furniture from the college, Carson rents computers, copier and postal equipment to assist in his summer work. In this instance, his old dorm room is NOT an insured location.

Related Court Case: “Defamation Suit Denied – Unrelated To Insured Location” – Illustrates how an insurer’s obligation to provide coverage is affected by the relationship between a loss and the location of its occurrence.

  1. “Motor vehicle”

A motor vehicle is a vehicle that is self-propelled, runs on land or on water, and includes any trailer that is towed or carried by such a vehicle. All of the following would qualify as motor vehicles:


cars trucks vans recreational vehicles certain golf carts
motorcycles mopeds all terrain cycles all terrain vehicles snowmobiles
sports utility vehicles motorized carts self-propelled mowers lawn tractors motorized bikes, scooters and similar vehicles


Any vehicle that is motorized and self-propelled is considered to be a motor vehicle. Both of these elements must be present.

Related Court Case: “ATV Injury Not Covered By Homeowners Policy”

Items such as sleds, non-motorized carts, bikes and similar property do not qualify as motor vehicles.

  1. “Occurrence”

This term refers to an accident that causes “bodily injury” or “property damage” during the policy period. A repeated exposure to similar conditions (that creates either BI or PD) is also considered an “occurrence” IF the BI or PD takes place within the policy period.

Related Court Case: Does Policy Cover Host Who Served Minors?

  1. “Property damage”

This term refers to direct damage to tangible property (including its destruction) or the direct or indirect damage caused by the loss of use of tangible property.

Example: Marty owns a home that is insured under a Special Form policy. Marty’s friend, Lisa, lets Marty use her condo for his vacation. Marty causes a lot of fire and smoke damage when he leaves a small grill unattended on the balcony. A gust of wind tips it over, sending hot charcoals onto the condo’s carpeting. Lisa sues Marty for reimbursement of the damage as well as the cost of renting another condo as it was unavailable for her own vacation. Lisa’s loss of use claim would qualify as property damage under Marty’s policy.

  1. “Residence employee”

Refers to a person hired directly by a person who, by definition, is considered to be an insured. It also applies to a person an insured hires to work for him or her via a contract with a firm that leases workers. In either case, the worker’s duties have to be related to maintaining or using the insured premises.

Note: A person, who performs such duties for an insured, but at a different location, also qualifies as a residence employee as long as that work is not connected to an insured’s business.

Example: Jim does Penelope a favor, sending his gardener to work around Penelope’s home for a week to help her get prepared for a wedding that will be held there. During that week, the gardener is still considered a residence employee under Jim’s policy.

  1. “Residence Premises”

Refers to any of the following that are used mainly for family residential purposes:

  • One-, two-, three- or four-family house, (the insured MUST live in one of the units)
  • The part of ANY other building where an insured lives as well as any other structures and grounds that exist at that location.

HOWEVER, any of the above must be listed on the policy declarations of the residence premises.


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