I See Dead People… Are They Covered?

The title of this month’s column is obviously a cinematic play on words, referencing the well-known catchphrase from the movie “The Sixth Sense.” For those of you who saw the movie, you were probably shocked, or at least surprised, the instant you realized what was going on in it.

A different kind of shock is experienced by most people anytime a significant insurance claim event occurs. The degree of shock is amplified greatly if the event involves bodily injury, especially death. That shock is compounded if one learns that there is no insurance coverage to be found to ameliorate the financial impact of the loss.

Over the years, I’ve probably been consulted on well over a dozen property claims that arose from a death on the premises of a residence, owned or rented. Sometimes death occurs naturally, other times by suicide, and occasionally by homicide. In many instances, the death may not be discovered for weeks or longer and when it is, remediation is usually a highly unpleasant task.

In one case, an apartment owner discovered the remains of a tenant that apparently died of natural causes, when the tenant’s next door and downstairs neighbors reported a persistent foul odor. The biohazard cleanup and debris removal costs, along with reconstruction expenses, totaled well over $150,000. The non-ISO businessowners policy (BOP) had a “biological pollution” exclusion but there was an Additional Coverage for “Spillage or Residue Removal” expenses. However, this coverage was limited to $5,000. Though there was an option for higher limits, that endorsement was not added to the policy.

Most homeowners and dwelling policies have a pollution exclusion that often reads something like:

“Discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge, dispersal, seepage, migration, release or escape is itself caused by a peril insured against under Coverage C of this policy. Pollutants means any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste….”

Commercial property and BOP forms typically have a similar exclusion and exception, though the exception for coverage requires a “specified peril” often listed in the Definitions section of the form. These forms also typically include a “Pollutant Clean-up and Removal” Additional Coverage, but the limit is often in the $10,000 range, though it can usually be increased by endorsement. However, the real sticking point is that clean-up and removal usually apply only to land and water, not carpeting, wood floors, etc.

What constitutes a “pollutant” varies by judicial jurisdiction. Some courts apply the principle of noscitur a sociis that was discussed in prior editions of this column and opine that the list of “smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste” refer largely to artificial, industrial or environmental substances, not bodily fluids or decomposed organic matter. Other courts uphold the exclusion by interpreting the “any solid, liquid, gaseous” language to refer to any form of matter that causes loss as an “irritant or contaminant.”

Another consideration is that “pollution” exclusions usually appear only in personal lines open perils forms and commercial lines Special Causes of Loss forms, not in named perils forms. What if the cause of loss in the policy is a named peril and there is no “pollution” exclusion? In that case, there could be coverage if the cause of the pollution or contamination is a listed peril.

For example, in a few court cases involving suicide by firearms, courts have found that the discharge of the gun constituted an “explosion,” which was a named peril. No doubt there are other cases where a court reached a different conclusion. But, IF there IS coverage under a named perils form, there should be coverage under an open perils form, at least one employing ISO language. In ISO’s 1991 countrywide homeowners forms filing memorandum, they stated, “This change is being made to avoid having the Special Coverage forms provide lesser coverage than what is provided under a Named Perils form….”

In addition to the typical “pollution” exclusion, many policies incorporate other, similar types of exclusions, from “contamination” to more specific microorganism, bacteria, and/or fungal exclusions. These may be added by endorsement and it’s possible the endorsement can be removed. In other cases, there may be options for coverage exceptions by endorsement with specific additional limits that apply to such losses.

In the case of suicide claims, in at least one instance the adjuster attempted to apply an “Expected or Intended Loss” exclusion to the damage caused by a shotgun blast and the resulting damage from organic matter and decontamination.

These exclusions should be read carefully and are unlikely to apply. The exclusion may only apply to insureds under the policy and/or there could be an “innocent insureds” exception by statute, case law or via Separation of Insureds language in the policy. In addition, it is hard to argue that someone committing suicide has the mental capacity to form intent or to expect to understand the destructive consequence, beyond their own demise, of the act. And, as always, keep in mind that in the case of exclusions, the burden of proof is on the insurer.

If you insure a habitational property (apartment, condo, hotel, etc.) that has broad pollution clean-up coverage, consider increasing the limit beyond that provided by the policy. Also be aware of other types of potential limitations like microorganism exclusions for bacteria, fungi, etc.

The discovery of a deceased person can be a traumatic event and the last thing anyone wants is a disagreement over insurance coverage following such a loss. Talk to your insurers’ underwriting and claims departments in an attempt to resolve these claims before they happen.