Insurance Coverage Only Goes So Far

It should be pretty obvious that you only get the insurance you ask and pay for. Yet, sometimes coverage is sought well beyond the scope of the policy. In a recent case, the court made short work of the issue, but nevertheless the case went all the way to an appeals court even though it was obvious there was no coverage.

In Atain Specialty Insurance Co. v. Dignity Housing West, Inc., No. 21-15127 (9th Cir. Dec. 3, 2021), a low income housing developer sought commercial general liability insurance. In its application, it described itself as a housing developer and listed only its 200 squire feet office space. Although the application asked about any apartments, it failed to list the three apartment building it owned or maintained. Of course, a fire broke out in one of the buildings resulting in several deaths and lawsuits and the insured sought a defense from the insurer. The insurer initially provided a defense, but subsequently withdrew and sought a declaration that there was no coverage for the building.

The district court granted summary judgment for the insurer and the insured appealed. In affirming, the appeals court noted that on the insurance application, the insured claimed that it rented only the office premises. The policy’s supplemental declarations page listed that space as the only premises that the insured owned, rented, or occupied.

The court held that the information in policy declarations controlled the scope of insurance coverage. So, said the court, “if the declarations indicate that the policy does not provide coverage, ‘no further review of the policy is necessary.’” (citations omitted). Because nothing in the declaration supported the view that the policy applied to any of the insured’s three
undisclosed apartment buildings, the court found that the policy did not cover the building that had the fire.

The court also noted that the insured only paid a $360 annual premium and indicated that this premium clearly would not provide coverage for three apartment buildings. Finally, the court rejected the claim that the insurer acted in bad faith by not accepting the underlying claimant’s settlement offer because when there is no potential for coverage there can be no action for breach of the implied duty of good faith and fair dealing.

There are two useful points here. First, if you want coverage make sure your application requests the right coverage and lists all the premises for which the coverage should apply. Second, there is a relationship between premiums and coverage. As the court said, a $360 annual premium for a CGL policy does not support coverage for three apartment buildings.