Tuesday, November 26, 2013
Read Carefully. The Insurance Coverage You Thought You Were Getting May Not Be The Coverage You Got.
A recent U.S. District Court case in Colorado highlighted the importance for an insured to read and understand the terms of its insurance policy. The case 2-BT, LLC v. Preferred Contractors Insurance Company Risk Retention Group, LLC, Civil Action No. 12CV02167PAB, was a controversy between an insured’s expectations for coverage, and the terms and exclusions of the insurance policy.
2-BT is a heating, ventilation, and air-conditioning (“HVAC”) contractor, which utilizes soldering devices and heat sources among other tools for its trade. 2-BT needed liability insurance to cover its work, and found a provider, Preferred Contractors Insurance Company Risk Retention Group, LLC (“PCIC”). 2-BT read PCIC’s online materials, which stated “PCIC’s personalized underwriting process allows us to tailor coverage to properly outfit the contractor with excellent coverage and rates.”
2-BT filled out a policy application, which included a description of the type of HVAC work it performs, initialed several sections, and signed it. One of the initialed paragraphs on the application, “Policy Exclusions,” stated that damages arising from “fungi/bacteria,” “open flame,” and “use of heating devices,” was not covered. PCIC issued a policy to 2-BT, which included a section titled, “Additional Exclusions” that excluded coverage for mold and damage related to heating elements among others.
A few weeks after the policy went into effect; a 2-BT employee was using a blow-torch on a job, but triggered a fire sprinkler that flooded two condominium units, which led to mold growth. 2-BT submitted a claim to PCIC, but PCIC denied coverage. 2-BT sued PCIC, claiming fraud, deceptive trade practices under the Colorado Consumer Protection Act (“CCPA”), and breach of contract.
The Court dismissed the lawsuit without a trial, granting PCIC’s motion for summary judgment. The Order can be found at 2013 WL 5729932.
2-BT based its claims for fraud and under the CCPA on PCIC’s statement online that it provides a “personalized underwriting process. . . to tailor coverage to properly outfit the contractor with excellent coverage and rates.” The Court, however, held that this was merely a statement of opinion, or puffery, and not one a reasonable person would consider an objective statement of warranty. The statement is not actionable under fraud or the CCPA.
For its breach of contract claim, 2-BT claimed that the policy was ambiguous, as it did not meet the reasonable expectations of an HVAC contractor. Both parties acknowledged that the policy incorporated the application, where 2-BT provided basic information about the type of work it performs. 2-BT argued that an HVAC contractor would reasonably expect coverage for work using heat elements. But the Court disagreed, stating, “Here, the relevant inquiry is not what an HVAC contractor might reasonably expect, but what an ordinary reader would reasonably expect and understand upon a reading of the entire policy.” Order at pg. 6, citation omitted. The Court found that “an ordinary reader of the entire application and policy would reasonably expect that liability arising from mold and the use of heating elements would be excluded from coverage.” Order at pg. 7. Further, since the policy would cover occurrences arising from personal injury and other types of property damage, the policy was not illusory. In exchange for receiving premiums from 2-BT, PCIC was incurring a risk of liability that the policy would cover.
When applying for or obtaining an insurance policy, it is critical that the insured confirms that the policy, its terms and exclusions, actually provides the coverage to meets the insured’s needs.