WEATHERING A WINDY PERIL
A farmer suffered a significant loss of income and livestock that involved an ill wind blowing his way. The farmer’s pigs were infected with pseudorabies. Storm winds passed over a location that contained infected livestock. The virus was swept up and transmitted to the insured farm.
The farmer filed a claim, asking for reimbursement caused by lost livestock sales and destruction of sick swine. The insurance company denied the loss, claiming that the transmission via winds did not qualify as a peril and the farmer sued for coverage. Click here to see how the trial and appellate courts treated the insurer’s interpretation of the wind peril.
Here is how a higher court viewed the insurance company’s argument regarding the application of depreciation in ACV losses.
On March 13, 1990, in Clay County, Nebraska, a tornado stirred up a windstorm that passed directly over a farm that contained pseudorabies-infected swine. The windstorm blew the virus to the plaintiff’s farm and infected its swine, resulting in sickness and death. The affected swine were used for breeding.
A few months before the incident, the plaintiff, Curtis O. Griess & Sons, Inc (Griess), purchased an insurance policy from Farm Bureau Insurance Company of Nebraska (Farm Bureau) to cover its livestock. The policy included windstorm as a covered peril, but infectious disease was not mentioned in the policy. Griess submitted a claim to Farm Bureau for the vet bills to treat the infected swine, and for the money it had to return to clients since it could no longer sell those swine. The surviving, infected swine could no longer be used for breeding and had to be slaughtered.
Farm Bureau denied coverage stating windstorm does not include the transmission of an airborne virus. Griess filed a lawsuit and was provided partial summary judgment in its favor. The district court found that the windstorm was the direct and proximate cause of loss. Since Farm Bureau did not agree with the ruling, it filed an appeal.
Farm Bureau did not dispute that the windstorm transmitted the virus to the Griess’ farm or that the swine became infected. It argued that the airborne transmission of the virus was not covered under the policy. Farm Bureau maintained that the windstorm was not the immediate reason; rather, the loss was from the virus and other prior conditions, which made the swine susceptible to illness. While the virus was the cause of the death and sickness to the swine, it would not have occurred had the windstorm not blown it to the Griess farm. Even if the swine were susceptible to sickness, the direct source of the illness came by way of the windstorm.
However, the court found that the language of the policy was unambiguous. The appellate court agreed and affirmed the district court. The court used the example that the wind did not need to physically blow the infected swine to the Griess farm for coverage to apply. The windstorm set the loss in motion and treated the windborne virus no differently from other objects. Thus, the windstorm is the direct cause of injury and transmitted the virus. The appellate court found the insurer was liable for the vet bills, the client reimbursements, and the attorney fees.
Curtis O. Griess & Sons, Inc., a Nebraska Corporations, Appellee, v. Farm Bureau Insurance Company of Nebraska, A Nebraska Insurance Corporations, Appellant, NO.S-93-342, March 10, 1995.
Coverage Interpretations Can Change
It’s valuable to keep in mind that taking anything for granted is inadvisable. That warning certainly applies to assumptions about the application of iconic causes of loss. In this case, an insurer made a denial, relying on its traditional interpretation of wind loss. However, when financial stakes exists, so does the incentive to challenge policy wording and insurer arguments.
Regardless what side of a dispute you may be on, care must be taken regarding coverage positions. Policy wording is always important, but no more than loss circumstances. Language that may have long been considered cut and dried can be shaken when a loss presents details that have not been anticipated. New situations are a major reason for reevaluating and changing policy language. The insurance policy involved in wind-driven virus loss is an example of how an aggrieved party pushes the parameters of how a given peril applicability is interpreted.
Here is an excerpt of wording on the wind peril found in Gordis on Insurance in Advantage Plus.
Windstorm or Hail
There is no requirement that wind attain any minimum velocity. However, there is no liability for loss or damage caused directly or indirectly:
- By frost or cold weather
- By ice, or snowstorm, whether driven by wind or not. The only exception is hail.
- By rain, snow, sand, or dust to the interior of any building or to the property inside the building unless wind or hail first damages the roof or walls of the building. If the building is damaged in this way, the policy pays the ensuing loss caused by the rain, snow, sand, or dust entering through the openings in the building made by the windstorm or hail.
- To trees, shrubs, and plants on a vegetated roof but only when caused by hail.
As an option, losses caused by windstorm or hail may be excluded from the policy, with a corresponding reduction in the basic loss cost or rate.
Does Damage Always Have to Be Direct?
A key component in this dispute, and in many others, is direct damage. Basic property policies are intended and priced on the premise of reimbursing policyholders against perils (sources of loss) that create direct, or tangible loss. An extension of direct damage coverage is, under certain conditions, recovery for loss of use of property, such as building or equipment. However, the loss of use protection is directly related since the loss of use is created by tangible damage to property from a source of loss that a policy insures against.
Determining whether coverage exists usually depends upon policy language which may express coverage in an affirmative manner (such as listing and defining perils) or in a negative manner (no specific reference to perils, but with liberal use of exclusions, explaining what is not covered). Combination approaches are quite common, where perils are defined and then clarified with exclusions. Besides language addressing given perils, policy language may define/exclude coverage for classes of property too.
Here is an article discussing livestock as a class of covered property under the ISO Farmowners Analysis under PF&M found in Advantage Plus.
The insurance company covers specifically scheduled livestock if there is a limit for it on the declarations.
|“Billy’s Pride” (Charolais Bull)||$12,000||$129|
This item also covers classes of livestock with a limit on the declarations. The limit applies to covered livestock when on or away from the insured premises. The most paid for loss to any one head of livestock (other than any specifically scheduled with a specific value) is the least expensive of the following options:
- The damaged or destroyed livestock’s actual cash value
- 120% of the amount calculated by dividing the limit for the livestock class that sustained loss by the number of head in that class that the insured owned at the time of loss
The maximum limit available for a single head of livestock not specifically listed and described is the lesser of$2,500, the livestock’s actual cash value, or the amount determined by a formula. The formula is: Insurance limit for class of livestock ÷ number of head in that class x 120% = limit of insurance for each Individual head of livestock.
|Example: The insurance limit is $15,000 for ten head of beef cattle. If a covered cause of loss destroys one of them, the maximum amount paid is the smallest of the following:
$1,825 (market price for head of cattle at the date of loss)
|* $1,800: Determined by formula: ($15,000 ÷ 100) x 120% = $1,800|
Note: An individual horse, head of cattle, or mule less than one year old is counted as one-half head.
Newly Acquired Livestock
This provision covers livestock that the insured purchases or borrows during the policy period. However, new acquisitions must be of a similar class to a class scheduled on the declarations. The named insured must report newly acquired livestock to the insurance company within 30 days of the acquisition date and pay any additional premium. Premium is charged from the date the livestock was acquired. The insurance company does not pay more than 25% of the total of the limits on the declarations for all covered livestock. Coverage applies for 30 days from the date the livestock was acquired or until reported to the insurance company, whichever occurs first. However, coverage does not extend past the policy’s expiration date.
|Example: Farmer Ben Sheersum’s FO–6 Farm Coverage had a $30,000 limit for his flock of Rambouillet sheep. No other class or individual animals were listed. Ben borrowed several Columbia rams from a friend in order to try some crossbreeding. He also bought several goats to be handled by a new shepherd he recently hired to manage another area of pastureland. One morning, Ben discovered that his new shepherd was a thief who made off with the goats and his friend’s rams. Ben did not inform the insurance company of the rams or the goats. Since the theft occurred within 30 days of Ben borrowing the rams, the sheep loss was covered. However, he could not recoup the loss of the goats because there were no goats listed.|
Silence Causes Disputes
Finally, there is also the issue of silent coverage. When a loss takes place, the question arises, “Is it covered?” Once rare, there are sources of loss that are not mentioned directly as stated perils, as an exception or extension, or within policy exclusions.
When no references exists, a policy is said to be silent. Silence is a problem. The three possible parties to insurance contracts, policyholders (first party), insurance companies (second party) and persons suffering injury or damage by policyholders (third party), all rely on knowing the intent of coverage. Specific references are, usually, clear indicators on what is meant to be insured. Silence is the absence of indicators. While insurers may argue that coverage was not intended, parties who suffer silent losses (our term) are extremely likely to argue that coverage exists.
In such instances, insurers are often at a distinct disadvantage as silent issues may be deemed as oversights or ambiguities that are ruled in favor of claimants in litigation.
Below is an article that further discusses silent coverage. It’s from E-marketing for Agencies found in Advantage Plus.
Emerging and Silent Insurance
Part 1 discussed that insurance operates in an environment that contributes to it being a conservative service sector that is somewhat resistant to change. This part is about elements that arise from the other fact, which is that insurance often faces and responds to evolving circumstances.
Insurance companies provide a dizzying array of products that address private and commercial needs for coverage. Along with continuously maintaining traditional protection against age-old sources of loss such as fire, windstorm, weight of ice/snow, collision, theft, vandalism and many others, insurers must also monitor the development of new sources of loss such as the following:
- Data Privacy
- Cyber Security
- Coverage for Digital Assets
- Sharing/Gig Economy
- Climate Change Risks
- Internet of Things Product Liability
- Driverless Vehicles/Deliveries
While insurers attempt to handle such challenges, adjustment is uneven and takes time. A typical arc involves recognition of a newer loss exposure being followed closely by creating exclusions to bar coverage. As such exposures mature, showing patterns of claims, forms or modified exclusions arise that provide limited protection. As time passes, additional experience accumulates and available coverage often becomes broader and, eventually, wider spread.
However, the process of dealing with emerging-to-maturing exposures can create instances of silent coverage. The latter occurs when a given policy neither expressly mentions a source of loss as covered nor does it appear among specific exclusions; therefore a policy is silent. Disputes arise as parties who suffer loss by such exposures will argue that silence equates to coverage. Silent situations once discovered are eventually resolved by including reference to them that results in either deliberate coverage or exclusion.
In any case, the insurance sector, while inherently conservative, constantly faces and addresses change from a variety of sources. Constant communication with an insurance professional is a prudent move for monitoring changes in available insurance protection.
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