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» VISIT US ONLINE @ DSNEWS.COM 57 the risk of an arson fire under an all-risk policy where the policy excluded coverage for vandal- ism … e answer to that question is no." Under similar circumstances, the Maryland Court of Appeals held, in Mutual Fire Insurance Company of Calvert County v. Ackerman, that the subject insurance policy was, "independently ambiguous because 'fire' and 'vandalism' are listed as separate perils insured against for property coverage … because of the separate listing of these perils, two different meanings could be inferred." Because of the ambiguity, the court remanded the case back to the trial court so that the parties could present evidence outside the terms of the contract (or extrinsic evidence) to support their "vandalism" interpretation. To add to the contrast of opinion, and also to the confusion, many jurisdictions have no legal precedent regarding the terms vandalism and arson as they pertain to a contractual va- cancy exclusion. Many state courts have yet too specifically, or tangentially, address the issue. So where does that leave the servicer or investor? What steps can be taken to address the issue? BEST PRACTICES As the case law suggests, insurance con- tracts vary greatly in terms and definitions. If confronted by a claim denial involving the vacancy exclusion and fire (arson), the first objective is to obtain a copy of the policy. Why? e mortgagee should determine if any ambiguity exists in the policy with regard to the terms vacancy, vandalism, fire, and arson. Most standard-line insurers cite or include policy language in correspondence explaining or denying benefits, but this will not give the servicer or investor all the relevant information. A claimant must first determine what terms, if any, are included in the policy and how those terms are defined, if at all. is information can only be obtained via a copy of the insurance policy. Absent an analysis of the terms and defini- tions of the insurance policy, and the possible placement of these variables in the contract, what other options does a servicer or investor have? e documentation created as part of the ordinary business of property preserva- tion may be helpful as well. Vandalism has become so routine in particular ZIP codes, or particular municipalities, that public services agencies may have no incident reports to docu- ment when it occurred. A servicer or investor should be diligent in reviewing any available documentation it possesses to determine if the date and time of the vandalism incident indeed matches the date and time of the fire loss. Inspection reports, preservation documenta- tion, and in some cases documentation from the applicable fire department will provide a chronology that can refute an assumption that the fire occurrence was contemporaneous to the vandalism occurrence. If the vandalism pre- dated the fire (or was documented after a fire loss), then an exception is not triggered with regard to fire. Although the vandalism claim may be denied, the fire claim would not. In addition, servicers and investors can lower the risk exposure for denials based on vacancy exclusions through coverage endorse- ments on existing lender-placed policies. e blanket policies that cover real estate owned properties (REO) and/or properties in the default cycle likely have coverage options that bridge the gap created through the vacancy exclusion under the borrowers' standard-line policy. ese endorsements provide certainty and peace of mind, but usually at a hefty cost. Servicers and investors must weigh the risks as- sociated with vacant properties against the cost of insuring against so many unknown variables. Servicers and investors are best served in assessing risk when aware of all the variables that could impact its interests in a property. In assessing risk on vacant properties, the exclu- sions contained in insurance policies should be understood in construction and application. When these coverage limitations are under- stood, servicers and investors can begin making decisions to best preserve the common interest of both the borrower and the organization: the subject property. Estes v. St. Paul Fire and Marine Ins. Co., 45 F. Supp. 2d 1227, 1229 (D. Kan. 1999). Battishill v. Farmers Alliance Ins. Co., 127 P.3d 1111, 1115 (N.M. 2006). American States Ins. Co. v. Rancho San Marcos Properties, LLC, 97 P.3d 775, 779 (Wash. Ct. App. Div. 3 2004). Mutual Fire Ins. Co. of Calvert County v. Ackerman, 872 A.2d 110, 118 (Md. App. 2005). P COVER STORY M ARKET PUL SE INDUSTRY INSIGHT INDUSTRY INSIGHT "A servicer or investor should be diligent in reviewing any available documentation it possesses to determine if the date and time of the vandalism incident indeed matches the date and time of the fire loss."

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