by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

INSURANCE; VACANT BUILDINGS: Sixty day exclusion for vacant buildings runs from day vacancy began, even if this is prior to the time that policy began; and insurer has no obligation to require representations or warranties of occupancy in order to avoid coverage based upon vacancy exclusion, even if it issues binder that does not disclose the vacancy exclusion and damage occurs before policy actually is deliverd. Gas Kwick, Inc. V. United Pacific Ins. Co., 58 F.3d 1536 (11th Cir. 1995)

Insured used tanks on the property to store gas, but had not used a warehouse also located on the property for some time. Insured obtained a blanket policy covering all of its 185 properties, and received a binder assuring coverage in accordance with the insurer's regular policies as of September 15. On September 20, prior to the actual issuance of the policy, the warehouse building was destroyed by accidental fire.

Held: Summary judgment for insurer. Interpretation of insurance contracts is a matter of law for the court, and the clause here unambiguously excludes coverage.

The insured's most provocative argument was that the exclusion for vacant buildings should begin to run sixty days after the policy began, rather than be measured retroactively to avoid coverage. It cited several cases, including Thomas v. Industrial Fire and Casualty Co., 255 So.2d 486, 488 (La.Ct.App.1971)

Here, for better or worse, is the court's reading of the two cases, supporting its conclusion that the exclusion in the instant policy "unambiguously" excludes coverage:

"[T]he language of the vacancy provision at issue in Thomas is significantly different from the language of the policy in this case. The vacancy clause in Thomas excluded coverage for buildings that are "vacant or unoccupied beyond a period of sixty days." Id. at 488 n. 1. In contrast, the United Pacific policy excludes coverage for a building that "has been vacant or unoccupied for more than 60 days before that loss or damage. . . ." Thus, as the district court reasoned, "[t]he exclusion clause in United Pacific's policy clearly defines the vacancy period in retrospective terms--the period is to be measured by looking back from the date of the loss; the vacancy provision is not defined in prospective terms, whereby it would be measured by looking forward from the issuance date of the policy."

As to insured's argument that it should be viewed as covered for pre-existing conditions that the insurer had neither inquired about nor warned about, the court confessed that it seems "inequitable" to stick the insured in this way, but said that in general insureds benefitted from coverage in advance of the policy, and that any different ruling would frustrate the issuance of binders in such cases:

"it would be difficult to fashion an exception for this situation. Insured parties benefit from having an early effective date while the policy is in the process of being issued. The exception argued . . . would seemingly place insurers in the situation of providing blanket coverage for all losses without exception until the policy (with its exclusions) is delivered to the insured.

Insured argued that to permit the insurer to invoke the coverage here would render the insurance a nullity. It pointed it out that the insurer did not inquire whether the covered building was vacant and required no warranty to that effect. It cited Poland v. Phillips, 371 So.2d 1053, 1056 (Fla. App. 1979), which held "[a]n insurance policy may not be issued on a vacant building and then be excluded from coverage because it is a vacant building." But in Poland, the insurer knew that the building in question was vacant, whereas in the instant case the insurer had no such knowledge and the policy covered over the policy in question covered 185 properties, making it impractical for the insurer to check every building prior to coverage.

Comment: The problem with the insured's argument is that it proves too much. There most be some areas of coverage as to which the insurer will not be bound when the insurace excludes them, whether or not the insured has reviewed the policy. The insured has to understand that insurance does not cover all risks in all cases, and if it wishes more detail, it can always demand to see a policy prior to issuance. If it chooses instead to accelerate coverage, then it must take some risk. Clearly, a property vacant for a long time presents a significantly enhanced risk to the insurer, even if insurance commences only a day prior to coverage.

But the practice lesson is there for a lawyer seeking insurance for a client. Warn the client about the fact that a binder may not really provide the insurance the client is seeking. At a recent CLE presentation, a speaker argued (and many in the audience agreed) that most lawyers in fact are not expert enough about insurance to assist their clients in acquiring coverage. By agreeing to assist, the speaker argued, lawyers hold themselves out as having expertise at a level commensurate with other legal matters in which they represent the client. Such representation is inaccurate, and exposes the lawyer to liability when things go wrong. The speaker, by the way, frequently handles real estate attorney malpractice cases for plaintiffs.

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