Questions & Answers

Q. We have a business client whose home is located on 10 acres of land with a barn. On this land the insured, who is not a farmer, keeps a small tractor/mower and several horses, along with saddles and tack for personal use by the family. We have had two underwriters tell us that the special limit of liability of $2,500 on business property applies to the saddles, tack and mower and that the barn is not covered even for 10 percent under the dwelling extension.

A. No. Your underwriters need to catch up by about five years. Prior to October 1, 1995, the homeowners policy referenced farm and ranch property and commercial, manufacturing or farming purposes in the policy language, which caused a lot of confusion. Effective October 1, 1995 the homeowners policy changed due to a request by the Independent Insurance Agents of Texas.

The other structures coverage now states, “We do not cover other structures: used for business purposes; or wholly rented to any person, unless used solely as a private garage.” Regarding the limit of $2,500 on Business Personal Property, the limitation applies to “business” property. The term “business” is defined to include trade, profession or occupation. With this change in the policy language, coverage for your insured’s personal property (saddles, tack and mower) without the $2,500 limitation, as well as coverage on the barn under the dwelling extension, would be included

Q. One of our insured’s called asking about a possible law on diminished value. He is asking if a dealership can diminish the value of his vehicle when he trades it in, even though the dealership is the one that is repairing damage due to an accident. Can you provide us with further information?

A. It sounds like you have two different issues at work here.

Your insured has had an accident and the damages are being repaired at a dealership and/or the dealership has made an estimate of the repairs, and is also offering to take the car as trade for another. Essentially, they are offering to buy the car wholesale.

Your insured is probably just now learning that the car won’t be worth as much as it was before the accident, even after the repairs are done, because the prospective buyer (in this case, the dealer) knows it’s been in an accident.

The repair cost is all that the insurance company is responsible for. It is not responsible for this so-called “diminished value.” The Commissioner of Insurance recently put out a bulletin clarifying this fact.

Regina Anderson is director of technical services for the Independent Insurance Agents of Texas.

Topics Property