One of my first visuals of the conflagration in Los Angeles was a video of vehicles on the streets in the Pacific Palisades community being bulldozed to clear room for emergency vehicles. With traffic snarled as residents attempted to evacuate the area, many were forced to abandon their vehicles where they stopped.

So, sadly, one of the first things that popped into my head was the question of whether the bulldozer damage, or ultimately for some vehicles, the fire damage, would be covered by auto insurance. Whether there is coverage depends on the cause of loss that triggers the insuring agreements and any potential exclusions that might apply.

Let’s examine this issue under both auto and property insurance policies.

Personal Auto Insurance

Would damage caused by a bulldozer trigger collision coverage? Would fire, as a proximate or ultimate cause of loss, trigger comprehensive coverage? Aside from possible deductible differences, whether these might be comprehensive or collision claims is largely immaterial.

But what about exclusions? The one that comes to mind, using the ISO PP 00 01 Personal Auto Policy as an example, applies to:

“A total loss to ‘your covered auto’ or a ‘non-owned auto’ due to destruction or confiscation by governmental or civil authorities. This Exclusion…does not apply to the interest of Loss Payees in ‘your covered auto.’”

First, note this exclusion only applies to ‘total’ losses, and the language doesn’t distinguish between physical loss and a constructive total loss based on valuation.

Second, oddly enough, this ‘government action’ exclusion is far less common under business auto policies than personal auto policies.

So, does moving these vehicles constitute ‘destruction,’ or does that word imply willful and intentional damage as opposed to moving vehicles simply to clear the way for government vehicles?

This exclusion can potentially be triggered in several ways. For example, in one claim I consulted on, an auto was stolen and used in the commission of a felony. As a result, law enforcement took possession of the vehicle as evidence and impounded it for over a year. The auto insurer denied the claim based on a lack of ‘direct’ damage (which made no sense) but largely based on the ‘confiscation’ exclusion.

A perceived injustice in this claim was that, if the vehicle had simply been stolen and not found for over a year, most insurers would have paid this as a theft claim under comprehensive coverage. But the intercedence of law enforcement to ‘confiscate’ the vehicle removed coverage for the insured.

If the history of this exclusion is examined, you’ll find that it exists primarily for the purpose of prohibiting insurance recovery for parties engaged in criminal acts such as drug dealing, RICO violations, etc. That seems reasonable, but not in the case of innocent insureds who are the victims themselves of a crime or a government action beyond their control. Adding insult to injury, the exception to the exclusion extends coverage to the loss payee but not the insured.

This type of exclusion is not limited to auto insurance.

Homeowners and Commercial Property Insurance

You’ll find a ‘government action’ exclusion in most homeowners and commercial property policies. For example, ISO’s HO 00 03 homeowners policy excludes:

“…the destruction, confiscation or seizure of property…by order of any governmental or public authority. This exclusion does not apply to such acts ordered by any governmental or public authority that are taken at the time of a fire to prevent its spread, if the loss caused by fire would be covered under this Policy.”

ISO’s CP 00 10 commercial property form’s Government Action exclusion applies to:

“Seizure or destruction of property by order of governmental authority. But we will pay for loss or damage caused by or resulting from acts of destruction ordered by governmental authority and taken at the time of a fire to prevent its spread, if the fire would be covered under this Coverage Part.”

In March 2021, I blogged about a 76-year-old homeowner whose Texas home suffered $50,000 in damages from a shootout between police and a fugitive that involved explosives, tear gas grenades, and armored vehicles. An appeals court found that immunity statutes barred her recovery from the government and the U.S. Supreme Court declined to review the decision.

More important for our discussion here is that her homeowners insurer also denied the claim, citing the Government Action exclusion in the policy. These claims are not common, but they’re not rare either.

For example, in 2020 a similar incident occurred for a Colorado family whose home was largely destroyed by a SWAT team attempting to apprehend a fugitive.

In 2022, a California printing business experienced a similar loss under its commercial property policy and, in a separate incident, an Indiana homeowner’s house was damaged during a police search for a suspect who had never been there.

In the case of the Los Angeles conflagrations, we’ve heard stories of extensive looting of homes not damaged by fire itself. If, in attempting to apprehend looters, the property is damaged by governmental authorities, presumably they would be immune from claims and the property owner would likely have little or no recourse against their insurer.

In cases like these, the innocent property owner typically has little or no recourse against the government or their insurance carrier. And, given that these policies typically only cover direct damage, even if there was coverage for damage caused by a governmental authority, the diminished market value of the property can be significant, as was the case for one homeowner who ultimately sold her home at an alleged $100,000 less than the original asking price.

A Question of Fairness?

My argument FOR coverage under existing government action exclusions is that these types of exclusions were never intended to apply to situations like those discussed in this article, but rather to damage that arises proximately from the illegal activities of insureds. I think this premise is supported by exceptions in property policies for preventing the spread of fire and in auto policies for extending coverage to innocent loss payees.

I also point to language like ‘destruction, confiscation or seizure of property…by order of any governmental or public authority.’ Is the government actually ‘ordering’ destruction of property, or are they ordering an action to, for example, apprehend a criminal that unavoidably results in damage to property?

So, as referenced earlier, in 2021 I blogged about the issue, asking the question in the title of my blog post as to whether it was ‘Time to Make Government Action Exclusions More Equitable?’

What do YOU think?

Topics
Catastrophe
Natural Disasters
Wildfire