Insurance Coverage in the Wake of Disaster: The Government Action Exclusion
One of the first images that came to mind following the Los Angeles conflagration was a video of vehicles being bulldozed to clear streets for emergency responders. Residents, forced to evacuate quickly, often had to leave their vehicles behind. This prompted a question: Would damage caused by bulldozers or the fire itself be covered by auto insurance?
The answer, like many in insurance, hinges on both the specific types of coverage and any applicable exclusions. Let’s examine this in both personal auto and property insurance policies.
Personal Auto Insurance
Would bulldozer damage be covered under collision coverage? Would fire, as the proximate or ultimate cause of loss, trigger comprehensive coverage? The specific coverage type is less important than understanding potential exclusions. For instance, a common exclusion, using the ISO PP 00 01 Personal Auto Policy as an example, addresses: “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.'”
Several points are crucial here:
- The exclusion applies only to total losses, regardless of their physical extent.
- This ‘government action’ exclusion is less common under business auto policies than personal ones.
Does moving vehicles constitute ‘destruction?’ Does this word imply intentional damage, or does it include simply moving a car to make way for emergency vehicles? This exclusion can be triggered in various ways. One example involves a vehicle stolen and used in a felony. Law enforcement seized the vehicle as evidence, impounding it for over a year. The insurer denied the claim partly due to the ‘confiscation’ exclusion. Ironically, had the vehicle simply been stolen and not recovered for over a year, most insurers would have covered it as a theft under comprehensive coverage. The government’s intervention, however, eliminated coverage for the insured.
Historically, this exclusion primarily aimed to prevent insurance recovery for parties engaged in crimes. However, it might not apply fairly to innocent insureds who are victims of crime or government actions.
Homeowners and Commercial Property Insurance
Similar to auto insurance, homeowners and commercial property policies often include a ‘government action’ exclusion. ISO’s HO 00 03 homeowners policy, for example, 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.”
These exclusions can have significant consequences for property owners. Consider a 76-year-old Texas homeowner whose home was damaged in a shootout between police and a fugitive, involving explosives and armored vehicles. An appeals court ruled against her recovery from the government. Her homeowners insurer invoked the Government Action exclusion and denied the claim.
In another case, a Colorado family’s home was largely destroyed by a SWAT team. Additionally, a California printing business and an Indiana homeowner experienced similar losses. In the case of the Los Angeles conflagrations, reports cited extensive looting. If authorities caused damage while attempting to apprehend looters, the property owner would likely have little recourse against their insurer.
In such situations, the innocent property owner often has limited options. Even if a policy covered damage caused by the government, the diminished market value of the property can represent a substantial loss. Some homeowners have sold their homes at significant losses compared to the original asking price.
A Question of Fairness?
A compelling argument could be made for coverage under existing government action exclusions. These exclusions were arguably never intended to apply to situations like those described here, where damage arises from government actions during a crisis. This view gains support from:
- Exceptions in certain property policies for preventing the spread of fire.
- Exceptions in auto policies that extend coverage to innocent loss payees.
Furthermore, consider the wording: ‘destruction, confiscation or seizure of property…by order of any governmental or public authority.’ Is the government ‘ordering’ destruction by a bulldozer, or ordering an action to apprehend a criminal which incidentally causes property damage?
The author previously blogged about this issue, posing the question: “Time to Make Government Action Exclusions More Equitable?” You are encouraged to consider the same question.
