Legally Speaking – with Bob Mionske: Garage v. Roof Rack, Part II

Dear Readers;In my most recent column, S.S., a Tennessee attorney, asked about hisinsurance company's refusal to compensate him for the loss of his bicyclewhen he drove into his garage while his Wilier was attached to his roofrack (see "Isit my garage or my car that's at fault?"). I've received a numberof interesting responses from readers, and I thought it would be helpfulto share them with everybody, so in this column, we'll be taking anotherlook at the situation.As you may recall, the insurance company refused to compensate S.S.for the loss of his bicycle, because,

By Bob Mionske

Dear Readers;
In my most recent column, S.S., a Tennessee attorney, asked about hisinsurance company’s refusal to compensate him for the loss of his bicyclewhen he drove into his garage while his Wilier was attached to his roofrack (see “Isit my garage or my car that’s at fault?”). I’ve received a numberof interesting responses from readers, and I thought it would be helpfulto share them with everybody, so in this column, we’ll be taking anotherlook 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 policyonly covers damage caused by a vehicle. From the mail I’ve received, it’sapparent that S.S. isn’t the only cyclist who has discovered that his insurancecompany maintains that his policy doesn’t cover damage to a bicycle onthe 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’sbike was crushed. My auto insurance would not cover it because it was notcar related, and my homeowners insurance would not cover it because itwas not my bike. Both policies were with the same insurance company. Wetried everything to get it covered. I ended up paying for the bike.”

Another reader, B.N., wrote from Texas about a slightly differentproblem: “I drove my friend’s bike into the parking garage at my office,and I discovered two points worth mentioning: First, my auto policy strictlyexcludes coverage of the contents of the vehicle. Covering contents (includingthings attached to the roof or a rear rack) that aren’t yours means moreexpensive premiums. Second, my friend’s homeowner’s policy appeared tocover the bike, but also claimed that the garage caused the accident.”

Yet another reader, who just happens to be another Tennessee lawyer namedS.S., writes: “I too am a Tennessee attorney who has tried to driveinto the garage with my bike on top of the car.  My insurer paid forthe damage to the roof of my car under my auto policy, but denied coveragefor the damage to my bike and the garage itself because crashing a bikelocated 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 carwithout 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 makesense of that?…We pay insurance premiums to protect ourselves and propertyfor 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 thefact that both the car and the garage were necessary for the damage totake place—just as the car moving forward with the bike strapped to itwould not have damaged the bike by itself, neither would the garage doortop have damaged the bike (as much, in any case) had the bike not beenattached to the moving car.  While the insurer might get Solomonicand say that only half the damage was the “liability” of the car, at leastpart of the liability has to be attributed to the car.”So what’s up? Are the insurance companies collecting premiums but unfairlydenying 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 succinctlyput 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 thoughtit worth stating up front so we all have a common point of understandingfrom which we can proceed.So, your bike is insured, and it gets damaged. What happens when a claimis filed? Another insurance industry insider fills us in:

When a claim is filed, the insurance company is requiredto set aside a sum of money in reserve to cover any potential settlementon the claim. The amount they will have to place in reserve is variable,depending on the potential liability. Once the company has placed thismoney 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 createsan incentive for the insurance company resolve the claim as quickly aspossible.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 adjustersare given very limited authority in the amount they can offer for settlementof the claim. Second, claims adjusters are evaluated, at least in part,based on two factors: the adjuster’s average payout, and the average timethe adjuster’s claims take to close. From the company’s perspective, theideal adjuster should be closing claims quickly, and with a low averagepayout. From the adjuster’s perspective, claims can be closed quicklyin two ways; one way is to summarily deny the claim. Another way to closeclaims quickly is to pay every claim in full. Between those two extremesis the low payout, which saves the company money, but may not close theclaim quickly. Insurance companies readily fire claims adjusters with generousaverage payouts, so the incentive for the claims adjuster is to deny claimswhen circumstances raise potential questions about coverage. In a situationlike this, where there is some question as to whether the policy coversthe 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 possibilityof a lawsuit that will cost more to defend than it would cost the companyto just pay the claim “encourage” the insurance company to pay? Perhapssurprisingly, the answer may be no. As one insider notes:

Although the ads say different, they will go to any lengthsto not pay claims that are out of the ordinary. You wouldn’t believe thediscussions that go on in claims meetings. The really bad thing is that,legality and courtrooms aside, they have lots of money and can wear youdown very quickly. I’ve seen much more money spent fighting a claim thanthe 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 insurancecompany will likely pay the claim, but if the claim is questionable, theinsurance company may “go to any lengths to not pay the claim.”  However,different insurance companies handle disputes differently. Another insuranceindustry 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 tomake a profit. Understanding that basic premise will help you to be surethat your bike is covered if you need to make a claim. The key is to havea clear agreement with your insurance company about what is and is notcovered under the policy. This means going beyond merely buying an insurancepolicy; you need to tailor the policy to suit your needs. You need to beclear 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 insuredbacks over his own bike in the driveway, the auto policy’s PD won’tcover 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 payinga 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 specificallycovered is a good idea.  Even then, check out what is covered andwhat is not covered very carefully.  I have four bikes and have themspecifically covered (at a premium, I must admit).” This insider adds “eventhen, and with my background in insurance, I wonder [if I’m covered].

When insuring your bicycle, you will want to specify that the policy willpay the replacement cost rather than the actual cash value (ACV) of thebicycle. ACV is an estimated value which considers the age and conditionof the bicycle at the time of the loss. Typically, the ACV is much lowerthan both the both the original purchase price and replacement cost. Someinsurance companies will offer a separate policy, usually called a floater,which will allow you to tailor your coverage to ensure complete recoveryfor your stolen or damaged bicycles.

One reader, C.W., observes that “most insurance companieswill 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 dollarsper thousand in value. So, for under $10 a month you could fully insurea bicycle and have no deductible to worry about. You can add multiple bicyclesto the policy and be covered from theft or accidents.”

If you need to file a claim, your success in obtaining complete recoveryfor your loss will depend on the language of your policy and how thoroughyou are in documenting your bicycle. You will need to document all upgradesto the bicycle as well as any component replacements you have made andall accessories you have added.  I recommend that you make a videoor photographic record and store the documentary record in a safe place,such as a safe deposit box. You should also contact your insurance agentand 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 lawsuityour only recourse? One insurance industry insider offers this suggestionfor a no-cost alternative:

Aside from filing suit, however, the insured has anotherresource 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 claiminvestigated and the DOI will determine if it’s a justified complaint ornot. If it is justified, the insurance company will be obligated to paythe claim and could be fined by the DOI. At our company, we take DOI complaintsvery seriously. I’m not sure how it is in other states, but in our statewhen an insurance company denies a claim, they are required to do so inwriting with language in the letter describing how the claimant may contactthe 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 hisfair share of damaged property when the driver forgot about the toys ontop, 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 meanthe difference between riding your bike and fighting your insurance company.
Good luck-
(Research and drafting provided by Rick Bernardi– law Student-Lewis and Clark Law school)

Now read the fine print:

Bob Mionske is a former competitive cyclist who representedthe U.S. at the 1988 Olympic games (where he finished fourth in the roadrace), the 1992 Olympics, as well as winning the 1990 national championshiproad race.After retiring from racing in 1993, he coached the Saturn Professional Cycling team for one year before heading off to law school. Mionske’s practice is now split between personal-injury work, representing professional athletes as an agent and other legal issues facing endurance athletes (traffic violations, contract, criminal charges, intellectual property, etc).If you have a cycling-related legal question, please send it to mionskelaw@hotmail.comBob will answer as many of these questions privately as he can. He willalso select a few questions each week to answer in this column. Generalbicycle-accident advice can be found at notice:
The information provided in the “Legally speaking”column is not legal advice. The information provided on this publicweb site is provided solely for the general interest of the visitors tothis web site. The information contained in the column applies to generalprinciples of American jurisprudence and may not reflect current legaldevelopments or statutory changes in the various jurisdictions and thereforeshould not be relied upon or interpreted as legal advice. Understand thatreading the information contained in this column does not mean youhave established an attorney-client relationship with attorney Bob Mionske.Readers of this column should not act upon any information contained inthe web site without first seeking the advice of legal counsel.