Resolving Insurance Coverage and Claims Disputes

In last month’s column, I enumerated seven factors that enable one to avoid or prevent claim disputes:

(1) Having a good historical perspective of the industry;

(2) Understanding and embracing two foundational industry premises;

(3) Engaging in proper policy form drafting and approval;

(4) Seeking quality training and education;

(5) Investing time in detailed exposure analysis;

(6) Implementing sound and practical risk management/insurance processes; and

(7) Advocating for policyholders and other beneficiaries of insurance.

Historical Perspective

One adverse outcome of mandatory continuing education, I believe, is the focus on “just in time” learning at the expense of broad foundational industry knowledge. When I entered the insurance industry almost 50 years ago, your education began with structured educational programs that taught the history of insurance, how the industry works in all facets, and then you initiated a journey of broad insurance coverage knowledge enhanced by a deeper dive into the subject matter critical to your job duties. The focus today is more on “getting hours” to satisfy regulatory bean counting criteria than attention to building expertise through the historical analysis of policy form evolution.

That is evidenced by agent coverage questions and claim denial consultations I’ve been involved with over the past 30 years. During that time, I’ve written numerous articles on how fundamental policy exclusions like wear and tear, and mechanical breakdown are repeatedly misinterpreted by adjusters who seemingly do not understand the purpose, history and evolution of these types of exclusions. The same is true for pollution, earth movement and flood exclusions.

This point was made in a February email from Academy of Insurance director Patrick Wraight to Academy members headlined “History. We need to study history.” As Wraight pointed out, an examination of our past enables us to make good decisions today and gives us insight into the future.

Foundational Premises

The first foundational industry premise is that the purpose of insurance is to insure. This is no better evidenced than by a 1983 Travelers Insurance Company claims manual excerpt that said, “[There is a] requirement to meet the duty of good faith to the insured. The most positive way to do that is to look for coverage in our policies, and not to look for ways to deny coverage.” This is why policy insuring agreements, especially in liability policies, are written so broadly. It doesn’t mean that we don’t look to exclusions and limitations in the policy, but the initial presumption is that coverage exists and finding coverage is the focus.

The second foundational industry premise is that the mission of our industry is to assist individuals, families and organizations in minimizing their exposure to serious or catastrophic financial loss. This is why I’ve so often blogged critically about so many insurtechs. This is clearly not your mission when your website home page says, “Get insured in 90 seconds!” or you lead a consumer to believe that you can insure their auto exposures with nothing more than a photo of their license plate. “Fast, easy and cheap” is not a mission statement, given what is at risk.

Policy Drafting

Everything we do begins with the insurance contract. It doesn’t matter whether you’re an agent, broker, underwriter, adjuster, actuary, consultant, risk manager, educator, regulator, expert witness, attorney, etc. What we each do is governed by the policy forms that control whether a loss is covered or not. This begins with the competent drafting of form language.

Just recently, I consulted on a homeowners insurance claim where damage to a detached garage and storage building was denied because there was an exclusion for “farm-like” structures. According to the adjuster, the garage building “looked like” a barn because it was painted red, had an upper storage deck like a hay loft, and had a weather vane on the roof. Policyholder attorneys refer to policy language like this as “weasel words” on the premise that they can be interpreted any way an individual chooses.

I’d like to think that such wording is less the product of a deliberate attempt to obfuscate, and more likely due to the fact that drafting policy language to accomplish underwriting intent is difficult. But, when a term is found to be ambiguous, the proper course of action is to pay the claim and fix the language rather than argue intent that is poorly communicated. The courts agree. And I’ve been involved in several claim consultations where the insurer, to the credit of the claims department, did exactly that.

Quality Education

Earlier, I referred to broad, historical (a.k.a. “just in case”) education as foundational. However, deep “just in time” learning is the next step in the process after the foundation has been built.

I’m referring to a type of learning not always offered via CE programs, especially those of the fast/easy/cheap ilk. In addition, all too often someone attends a CE seminar or webinar simply because they need the hours. I recall once when an agency commercial lines producer waited until the last week to complete his CE requirement, then proceeded to literally follow me across the state, attending four consecutive personal auto seminars. I offered to allow him to teach the last session since he was now a subject expert.

While we don’t always know what we don’t know, perhaps the best form of education is self-directed learning. This can take the form of formal development programs or may simply involve diving into policy forms and reference materials. My primary industry mentor, the late John Eubank, CPCU, ARM, used to tell his students that 15 minutes per work day translates into 60 hours of education over a year.

Exposure Analysis and the Process

There’s an expression that goes, “What you don’t know won’t hurt you.” Unfortunately, in our industry, if we’re talking about risk, that phrase is patently false. As explained in last month’s column, there are three sources of coverage gaps that lead to disputes.

First is the failure to identify and/or quantify exposures. This is a premier failure of the “We can insure you in 60 seconds!” insurtechs. No, they can’t. Well, at least they can’t with the assurance that the insurance provided is proper and reasonably adequate. I received an automated homeowners quote on one site. They never asked me if I had a boat dock (I live on a lake). Presumably, if they had, they likely would not have asked if it’s on my “residence premises” (it’s not, it’s on Army Corps of Engineers property).

These questions are important because, otherwise, I’d have an uninsured $40,000 boat dock. That’s quite a hit at claim time to save a few minutes of risk analysis, allegedly to enhance the “customer experience.”

Second is the failure to insure or risk manage known exposures. Once you’ve identified loss exposures, have you matched them with the proper insurance policies and/or risk management techniques? In the April companion webinar to this article, I’ll provide numerous examples of when and how to do this and how this knowledge can make you far more competitive while minimizing your E&O exposure. (See www.IJAcademy.com for webinar details.)

Third is the failure to quality-control policy deliverables and risk information. Another expression, you’re likely familiar with is, “Be careful what you ask for.” In this case, a more cautionary phrase is, “Be careful what you DON’T ask for.” When placing coverage, there are certain forms and endorsements you will request from the carrier. However, there are probably far more endorsements the insurer will provide that you didn’t ask for.

So, you want to make sure that (1) what you asked for is there, (2) a form substituted for a requested form accomplishes the same thing or better, and (3) no exclusionary or limiting endorsements were added (e.g., any ISO CG 21 xx endorsement). If the latter is the case, then you’ll want to see if you can get them removed or a less onerous version substituted. In the companion webinar, I’ll give you some eye-opening examples of this, one from recent litigation I consulted on.

Advocacy

Although most of the articles remaining in this series will be devoted largely to advocating for customers at claim time, “advocacy” does not begin at claim time. As this list of preventative measures indicates, advocacy begins with the mindset that the purpose of insurance is to insure, with the goal being to minimize financial loss to the customer.

It continues with advocating for policy form changes. In the companion webinar, I’ll explain how you may actively participate in a formal program to accomplish this. It carries throughout the exposure analysis and insuring process, for example, by being vigilant as to the accuracy of information used to cover and rate the customer’s exposures.

Next month, as we segue from avoidance and prevention to resolution and advocacy, I’ll illustrate the main points of this article with practical, real-life examples, enumerate how to distinguish between ISO and non-ISO policy forms (and why that’s important), and explain how the cumulative knowledge in this series can make you more competitive while reducing your E&O exposure.