Insurance: Are You Covered?

The purpose of this article is to provide the reader with some background with regard to Insurance Law and to hopefully provide the reader with some needed information to avoid those loopholes and pitfalls which insureds are unaware of and which insurance companies so frequently take advantage. Insurance is defined as a contract whereby one party for compensation (the premium) assumes particular risks of the other party and promises to pay him or his assignee a certain ascertainable amount on a specified contingency. In order to qualify as an insurance company it must register in the State it is doing business. The insured must have an “insurable interest,” that is to have a real loss in the event the contingency (loss) occurs.

The basic rules of construction when reviewing an insurance contract are as follows:

1. Whenever an insurance policy and a governing statute are in conflict, the statute controls, and the policy is amended by operation of law to conform to the statutory standard.
2. Legislation involving automobile insurance must be construed with “liberality in effecting the broadest protection of auto accident victims consistent with the language of the pertinent statute.”
3. Statutorily mandated coverage cannot be countered by public policy provisions that are contrary to the statutory mandates or public policy.
4. Policy provisions that exclude coverage for liability resulting from intentional acts are “common,” “accepted as valid limitation” and consistent with public policy. (All citations omitted)

Upon reading and review these rules of construction one might say, “but I never had the right or ability to negotiate the terms of my contract of insurance.” While this is almost universally true, insurance contracts are closely scrutinized on behalf of the insured because insurance contracts are considered “contracts of adhesion.” That is, because of the “take it or leave” proposition of most insurance contracts and the unfair bargaining position of the parties, insurance contracts are subject to some special rules of interpretation. Some of these rules are: 1. Policies should be liberally construed in favor of the insured so that coverage is afforded to the full extent that any fair interpretation will allow; 2. That notwithstanding this, words should be given their ordinary meaning and in absence of ambiguity, a court should not engage in strained construction to support the imposition of insurer liability and; 3. That although courts should construe insurance policies in favor of the insured, they should not write for the insured a better policy of insurance than the one purchased.

How do all of the rules of construction and interpretation affect the policyholder and assist him in properly minimizing the risk of injuries and/or catastrophic loss due to unforeseen circumstances? First of all, I recommend reviewing your policies upon receipt to get a general idea of what is covered but more specifically to get an idea of what is NOT covered. A policy’s exclusions will, in the absence of ambiguity or other exceptions, be held to be valid. Secondly, I recommend reviewing and storing any applications for insurance as a frequent defense to the payment of any claim is that there was a fraud or misrepresentation in the application process. A misrepresentation by an insured may void a policy and allow an insurer to not pay a claim. A frequent source of difficulty is off the books employees – they (or the named insured) will not be permitted to recover workers compensation benefits and the employer can be subject to civil and criminal fines and penalties for his employing a worker who is not so covered.

An additional source of coverage issues is the area of intentional acts. Most policies have an exclusion indicating that there is no coverage for the intentional wrongs of an insured. By definition, liability insurance is generally held to be coverage for “negligent acts” which cause injury or damage to another. Therefore, there is significant case law addressing issues of coverage for intentional acts. Generally, the cases advise to look to the actor’s intent to cause the resulting injury in order to determine whether there is coverage. If there is intent to cause the injury or damage then there may be no coverage.

There is a duty upon all insureds to cooperate with an insurance company who is either investigating a claim or investigating coverage for a claim. Failure to cooperate during this process can also result in a denial of coverage for an otherwise valid claim.

Arbitration clauses have long been a part of many insurance policies. A recent New Jersey court decision has upheld the validity of an arbitration provision in a case in which there was an arbitration clause and two (2) unevenly matched parties (similar to an insurer and insured). It is likely that any, if not, all arbitration clauses would be upheld in an insurance setting.

As the natural disasters in New Orleans and elsewhere illustrate, it is very important to know what is covered and what is not covered. Is damage from flooding, wind and rain or earthquakes covered? Is your business or home in an area likely or unlikely to be so affected? Have the values of our personal items or property risen in the last number of years since you last reviewed your coverage? Have you added computers and software to the covered items and is there enough personal property coverage to replace these items if they are lost? Do you need rental reimbursement coverage if your property is uninhabitable in case of a loss? The bottom line is that insurance companies make money when they do not pay claims.

Sit down with your agent to find out the answers to these questions or speak with an attorney. An ounce of prevention is worth a pound of cure.