When purchasing insurance for your investments, you would be well served to fully review your policy’s exclusions". An exclusion is an occurrence giving rise to damages to property or person that your insurer will not cover. Many attorneys and accountants not fully versed on asset protection theories will often recommend their clients avoid entities in favor of ample insurance. A reason often cited is "insurance is cheap". Think about this for an minute – do you really believe something that is "cheap" will protect you in the event of disaster? I for one do not because insurance companies make money by mitigating losses i.e., claims, and investing premiums. When claims increase and investments in the stock market sour, insurers are adamant about covering any claim that might possibly fit into one of its policy exclusions. In the U.S. 5th Circuit Court of Appeals case of Nautilus Ins. Co. v. Country Oaks Apts. Ltd., No. 08-50652 an apartment owner found out first hand how much protection his policy offered when carbon monoxide seeped into an apartment and tragically harmed a fetus that was later born with mental and physical defects. The apartment owner believed his insurer would protect and defend him in the face of a lawsuit but instead he found himself battling his insurer over the dreaded "exclusion." In this case the exclusion pertained to whether the carbon monoxide entering the apartment building was a "pollutant" under the policy’s pollution exclusion. The court found that the carbon monoxide was considered a pollutant and its “discharge, dispersal, seepage, migration, release, or escape” was excluded under the policy. The court in a footnote went on to state that the reasonable expectations of the insured is not something the court need consider when deciding insurance cases. In summary, be sure to read your policy and ask for an explanation of any exclusion your are unsure of, or better yet have it reviewed by an attorney.
Posted by Clint Coons, asset protection attorney, Seattle, WA