Insurance Advertising and Regulators

Anyone who has read this column for the past four years, or earlier

articles of mine, knows that I am passionate about my disdain for the proliferation of price-focused industry advertising. I believe it creates or fuels the perception in the minds of consumers that insurance is a commodity differentiated solely by price, where coverage is pretty much the same from one policy and insurer to another.

In last month’s column, I wrote about being encouraged by what appears to be an increasing number of industry television ads focused more on coverage than price. That being said, I lamented that all too often it appears that the claim examples provided in the commercials don’t actually appear to be covered by that insurer’s, or most insurers’, policies.

At the end of that column, I posed several questions, including: Would a court find coverage for a claim clearly not covered based on policy language but arguably covered based on misleading advertising an insured allegedly relied on when purchasing the product? Should insurance regulators proactively take issue with advertisements that appear to suggest coverage equivalency that may not exist under that carrier’s policies?

To illustrate, one carrier’s auto insurance advertising pitch has included statements such as “SAME COVERAGE, Better Price” and “You get the SAME COVERAGE, often for less.” But does their policy provide the “same” coverage as a policy you currently have? Almost certainly not, depending on the unique circumstances of a claim and the fact that coverage is based on the insurance contract and claims practices.

Two insurers may interpret the exact same policy language differently.

For example, every personal auto policy I’ve seen has a “racing” exclusion. So, does that mean that all policies provide the same coverage (or lack of coverage) because they have a “racing” exclusion? No. What coverage is or isn’t available depends on the exact wording of each insurer’s “racing” exclusion and their interpretation of that language.

To illustrate, the ISO Personal Auto Policy excludes losses arising from racing inside a racing facility. Some non-ISO policies exclude racing losses that take place anywhere if prearranged. Other non-ISO policies exclude racing losses that take place regardless of location or prearrangement. In this latter instance, street racing is excluded but not under an ISO standard PAP form.

Courts

So, if you were persuaded to change insurers on the premise that you’d be buying the “same” coverage when, as we just saw, you wouldn’t be buying the same coverage, would a court uphold a lawsuit on that basis if your claim was denied by the carrier you switched to but it would have been covered by your prior insurer? Probably not, for a couple of reasons.

First, most courts look for coverage within the “four corners” of the policy. Unless something is demonstrably ambiguous or clearly against public policy, courts pretty consistently abide by the clear and unambiguous language of the insurance contract.

However, there are some exceptions. For example, in American Standard Ins. Co. v. Allstate Ins. Co., 210 Ill. App. 3d 443, 155 Ill. Dec. 162, 569 N.E.2d 162, (App. Ct. 1st Dist.,1991), the insurer denied a motorcycle policy claim involving the death of a passenger. The court found coverage, even though injury to passengers on motorcycles was clearly excluded by the policy language, because an illustration on the policy jacket showed a motorcycle with a driver and passenger, thus creating an ambiguity, in the eyes of the court, between the illustration and the conflicting policy language. Based on the illustration, the court ruled that the insured had a “reasonable expectation” of coverage.

Second, courts tend to give entities significant leeway when it comes to advertising claims. Exaggerated advertising or false meritorious claims are considered by many courts to constitute “puffery.” For example, in Pizza Hut, Inc. v. Papa John’s International, Inc., 227 F.3d 489 (5th Cir. 2000), the court referenced the Lanham Act (15 U.S.C. § 1125) and held that the alleged inflated claims of product superiority did not rise to the level of a prima facie case of false advertising under Section 43(a) of the Act. I have my doubts if this reasoning would apply to the purchase of insurance products, but to my knowledge this has not been tested.

Regulators

Turning our attention to insurance regulatory agencies, what about potential regulatory issues with “inaccurate” industry advertising? Well, there’s the old reliable “twisting” and “churning” that involves inducing someone into buying a policy represented as equivalent or superior to an existing policy that, in reality, actually isn’t. If such a statute or regulation applies to non-life products, its application is possible, but likely difficult in that even an overall inferior policy might have some provisions that are superior to the policy being replaced.

A more likely and broader regulatory candidate is the Unfair Trade Practices laws found in all states. For example, the NAIC Model Act says [emphasis added]:

Misrepresentations and False Advertising of Insurance Policies. Making, issuing, circulating, or causing to be made, issued or circulated, any estimate, illustration, circular or statement, sales presentation, omission or comparison that …

• Misrepresents the benefits, advantages, conditions or terms of any policy …
• Uses any name or title of any policy or class of policies misrepresenting the true nature of the policy or class of policies …

False Information and Advertising Generally. Making, publishing, disseminating, circulating or placing before the public, or causing, directly or indirectly to be made, published disseminated, circulated, or placed before the public … an advertisement, announcement or statement containing any assertion, representation or statement with respect to the business of insurance … that is untrue, deceptive or misleading …

Do claims by an insurer that their policy provides “the same coverage” as a consumer’s existing policy (which they’ve never seen) constitute an unfair trade practice? You can probably guess what my opinion is, but what is yours? We’re always interested in civil dialogue among readers of this column, so feel free to offer your opinions.