By Bob Mionske
Legally Speaking – with Bob Mionske: Garage v. Roof Rack, Part II
Published Jan. 31, 2006 by VeloNews
In my most recent column, S.S., a Tennessee attorney, asked about his insurance company’s refusal to compensate him for the loss of his bicycle when he drove into his garage while his Wilier was attached to his roofrack (see “Is it my garage or my car that’s at fault?”). I’ve received a number of interesting responses from readers, and I thought it would be helpful to share them with everybody, so in this column, we’ll be taking another look at the situation. As you may recall, the insurance company refused to compensate S.S.for the loss of his bicycle, because, according to the insurance company, the damage was caused by his garage, and not by his car, and his policy only covers damage caused by a vehicle. From the mail I’ve received, it’s apparent that S.S. isn’t the only cyclist who has discovered that his insurance company maintains that his policy doesn’t cover damage to a bicycle on the roof rack.
For example,W.R., wrote “I was driving and had my bike and some friends’bikes on top…long story short, I drove under a tree limb, and a friend’s bike was crushed. My auto insurance would not cover it because it was not car related, and my homeowners insurance would not cover it because it was not my bike. Both policies were with the same insurance company. We tried everything to get it covered. I ended up paying for the bike.”
Another reader, B.N., wrote from Texas about a slightly different problem: “I drove my friend’s bike into the parking garage at my office, and I discovered two points worth mentioning: First, my auto policy strictly excludes coverage of the contents of the vehicle. Covering contents (including things attached to the roof or a rear rack) that aren’t yours means more expensive premiums. Second, my friend’s homeowner’s policy appeared to cover the bike, but also claimed that the garage caused the accident.”
Yet another reader, who just happens to be another Tennessee lawyer named S.S., writes: “I too am a Tennessee attorney who has tried to drive into the garage with my bike on top of the car. My insurer paid for the damage to the roof of my car under my auto policy, but denied coverage for the damage to my bike and the garage itself because crashing a bike located on top of a car into the garage was not a covered peril. Seemed reasonable to me. They did pay about $1,500 to fix the car without any questions, and I didn’t really want to push the issue.”
Cyclists, of course, questioned the reasoning of the insurance company.One outraged reader, Dr. M. in Missouri, asks “How does one make sense of that?…We pay insurance premiums to protect ourselves and property for years, file a claim, they try to avoid coverage or if they do pay,raise our rates and/or cancel our policy, and we put up with it.”
Another reader, T.S., wrote to say that he was “struck by the fact that both the car and the garage were necessary for the damage to take place—just as the car moving forward with the bike strapped to it would not have damaged the bike by itself, neither would the garage door top have damaged the bike (as much, in any case) had the bike not been attached to the moving car. While the insurer might get Solomonic and say that only half the damage was the “liability” of the car, at least part of the liability has to be attributed to the car.”
So what’s up? Are the insurance companies collecting premiums but unfairly denying claims? Let’s take a closer look at insurance.
How the insurance industry works
Fortunately, we have some readers who offered an “insider’s” perspectiveon the insurance industry. As one insurance industry insider succinctly put it, “insurance companies are in the business of selling insuranceand making a profit. They are not in the business of paying claims.” Now, that shouldn’t really come as a surprise to anybody, but I thought it worth stating up front so we all have a common point of understanding from which we can proceed. So, your bike is insured, and it gets damaged. What happens when a claim is filed? Another insurance industry insider fills us in:
When a claim is filed, the insurance company is required to set aside a sum of money in reserve to cover any potential settlement on the claim. The amount they will have to place in reserve is variable,depending on the potential liability. Once the company has placed this money in reserve, the money is no longer available for the company to invest, and thus is no longer making a profit for the company. This situation creates an incentive for the insurance company resolve the claim as quickly as possible.However, because of the potential for lost profits from paying claims, companies must pay close attention to their costs. One way they keep costsunder control is through their claims adjusters. First, claims adjusters are given very limited authority in the amount they can offer for settlement of the claim. Second, claims adjusters are evaluated, at least in part, based on two factors: the adjuster’s average payout, and the average time the adjuster’s claims take to close. From the company’s perspective, the ideal adjuster should be closing claims quickly, and with a low average payout. From the adjuster’s perspective, claims can be closed quickly in two ways; one way is to summarily deny the claim. Another way to close claims quickly is to pay every claim in full. Between those two extremes is the low payout, which saves the company money, but may not close the claim quickly. Insurance companies readily fire claims adjusters with generous average payouts, so the incentive for the claims adjuster is to deny claims when circumstances raise potential questions about coverage. In a situation like this, where there is some question as to whether the policy covers the damage to the bike, the incentive is for the adjuster to deny the claim.
So what happens when the adjuster has denied a claim that is “questionable,”and the claimant is disputing the adjuster’s determination? Does the possibility of a lawsuit that will cost more to defend than it would cost the company to just pay the claim “encourage” the insurance company to pay? Perhaps surprisingly, the answer may be no. As one insider notes:
Although the ads say different, they will go to any lengths to not pay claims that are out of the ordinary. You wouldn’t believe the discussions that go on in claims meetings. The really bad thing is that, legality and courtrooms aside, they have lots of money and can wear you down very quickly. I’ve seen much more money spent fighting a claim than the claim was worth. Their rationale is that they don’t want to set a precedent.
So, if you have a claim for damage caused by a “covered peril,” the insurance company will likely pay the claim, but if the claim is questionable, the insurance company may “go to any lengths to not pay the claim.” However, different insurance companies handle disputes differently. Another insurance industry insider observes that
Our company is very concerned with bad faith lawsuits. Atour company, unless it’s a real black and white issue, any time the words”bad faith” are used in a written allegation we typically will get a legalopinion from our house counsel which investigates how case law would interpretthe policy language and the insurance company’s position. Even in caseswhere the company may have a right to deny a claim, we often will chooseto pay it if there is any grey area as to how the court may interpret it.
As the song might have said, if it had been written by a Tennessee attorney,”you better shop around” for the right insurance company.
What you can do to protect your bike
Of course, different insurance companies will handle claims differently, but the bottom line remains that insurance companies are in business to make a profit. Understanding that basic premise will help you to be sure that your bike is covered if you need to make a claim. The key is to have a clear agreement with your insurance company about what is and is not covered under the policy. This means going beyond merely buying an insurancepolicy; you need to tailor the policy to suit your needs. You need to be clear beforehand about what is covered by your auto and homeowners policies. For example, one of the insurance insiders notes:
With our auto policies, we won’t pay property damage toproperty that is in the care of the insured. For example, if the insured backs over his own bike in the driveway, the auto policy’s PD won’t cover it. If he backs over his neighbor’s bike, it will.
If you can get coverage for property on your auto policy, you will be paying a higher premium for it; if you can’t get coverage on your auto policy, you will want to have coverage under your homeowners or renters policy. An insurance insider advises that:
If one can, scheduling items one wishes to be specifically covered is a good idea. Even then, check out what is covered and what is not covered very carefully. I have four bikes and have them specifically covered (at a premium, I must admit).” This insider adds “even then, and with my background in insurance, I wonder [if I’m covered].
When insuring your bicycle, you will want to specify that the policy will pay the replacement cost rather than the actual cash value (ACV) of thebicycle. ACV is an estimated value which considers the age and condition of the bicycle at the time of the loss. Typically, the ACV is much lower than both the both the original purchase price and replacement cost. Some insurance companies will offer a separate policy, usually called a floater, which will allow you to tailor your coverage to ensure complete recovery for your stolen or damaged bicycles.
One reader, C.W., observes that “most insurance companies will let you take a personal property policy out on your bicycles. You have to provide evidence of their value, including upgrades to components, and supply pictures showing the condition. It only runs a couple of dollars per thousand in value. So, for under $10 a month you could fully insure a bicycle and have no deductible to worry about. You can add multiple bicycles to the policy and be covered from theft or accidents.”
If you need to file a claim, your success in obtaining complete recovery for your loss will depend on the language of your policy and how thorough you are in documenting your bicycle. You will need to document all upgrades to the bicycle as well as any component replacements you have made and all accessories you have added. I recommend that you make a video or photographic record and store the documentary record in a safe place, such as a safe deposit box. You should also contact your insurance agent and provide an inventory list along with itemized values. What if you suffer a loss that you believe is covered by your policy, but your insurance company denies your claim? Is the threat of a lawsuit your only recourse? One insurance industry insider offers this suggestionfor a no-cost alternative:
Aside from filing suit, however, the insured has another resource that can be very powerful; his state’s Department of Insurance. By filing a complaint with the DOI (at no cost), the insured gets his claim investigated and the DOI will determine if it’s a justified complaint or not. If it is justified, the insurance company will be obligated to pay the claim and could be fined by the DOI. At our company, we take DOI complaints very seriously. I’m not sure how it is in other states, but in our state when an insurance company denies a claim, they are required to do so in writing with language in the letter describing how the claimant may contact the state’s DOI to file a complaint.
Finally, to help avoid damage to your bicycle in the first place, one reader, J.M. in California, who used to sell roof racks, and has seen his fair share of damaged property when the driver forgot about the toys on top, offers this bit of practical advice: “There is a possible solution: Place a mirror either over the garage door or inside the garage’s backwall so when you drive in you see the rack on top and STOP!“ Sometimes, just taking a simple proactive measure like that can mean the difference between riding your bike and fighting your insurance company.
(Research and drafting provided by Rick Bernardi- law Student-Lewis and Clark Law school)