Once Upon a Time … Resolving Insurance Coverage and Claims Disputes
An independent agent in a small rural town insured a farmer whose barn burned down. The agent had failed to schedule the farm structure, so the farm policy did not cover the total loss. The agent routinely placed farm business with five different insurers his agency represented. To resolve the claim, the local manager of the insurer on the loss called the local managers of the other four farm insurers to explain what happened. They all agreed to each share one-fifth of the loss “so their agent would not be embarrassed in his community.”
This actual claim took place in 1952. If it happened today, do you think this is how the claim would be resolved? That, of course, was a rhetorical question. In this case, there really was no coverage dispute. The claim was not covered. Most denied claims are denied because they aren’t covered. However, sometimes claims are denied when there is a legitimate dispute about whether coverage exists. In such instances, all too often the method of resolution is contentious and involves litigation. It doesn’t have to be that way, even if it can no longer be the way it was in 1952 (though I have an idea about how that could still happen).
Making a Case for Coverage
I have spent much of the past 30 years assisting independent insurance agents in getting denied claims paid if, using logic and language, we could make a case for coverage. How we did this, time after time, is the basis for this series of Insurance Journal columns and a companion series of webinars from Insurance Journal’s Academy of Insurance. Over the next 12 months, I’ll be introducing proven legal and contractual doctrines and principles that I and others have used to resolve well over 90 percent of all coverage and claims disputes without litigation. The implications, just for customer retention, are significant.
In subsequent columns, we’ll explore four reasons why claims are denied, two ways to deal with claim disputes, seven ways to avoid claim disputes, three sources of coverage gaps that lead to disputes, 12 important policy interpretation doctrines to use to determine if coverage exists, 17 indispensable legal and contractual principles, and so much more.
You’ll learn why insurance is not a commodity, why coverage folklore is not fact, and why the most critical interpretive doctrine is something called “RTFP!” Revealed, perhaps for the first time, are the sole purpose of insurance, the industry’s “one thing” and the answer to the question, “What’s so funny?” We will investigate things like “weasel words” and discover the extraordinary power behind Latin phrases like “noscitur a sociis” and “ejusdem generis.”
You’ll learn the subtle science and exact art of potion-making, how to bewitch the mind and ensnare the senses. I will teach you how to bottle fame, brew glory, even … wait. Sorry. That was from Professor Snape’s introduction to potions class. I sometimes get sidetracked when incorporating lessons learned from movies into insurance articles and presentations.
In fact, over the course of this series of columns and webinars, I will quote from cinematic classics like the Oscar-neglected masterpiece Road House to illustrate important insurance doctrines made philosophically relevant by great minds like Snape and Road House’s Dalton. Little did you know that Dalton’s “3 Rules” had insurance implications.
At the end of the series, we’ll demonstrate how all of these principles, procedures, and practices work as part of a proven four-step method I’ve employed to successfully resolve somewhere in the neighborhood of 100,000 claims. The process is simple.
Step 1 consists of reading the applicable policy forms in their entirety.
Step 2 involves interpreting the form language in the context of each claim’s unique set of facts and circumstances.
Step 3 centers on researching and documenting that interpretation from authoritative sources.
Step 4 concludes either with concurring the claim denial or pleading an alternative interpretation to overturn the denial.
Not a Commodity
Next month we will begin our journey in earnest. However, before we can do this, there is something that we must all agree on and that is: Insurance is NOT a commodity.
I realize that most consumers and many business owners believe that insurance is a commodity differentiated only by price. And why not, given that we have drilled this into their minds via incessant industry price-focused advertising and insurtech promises of fast, easy and cheap.
My experience over decades, and increasingly so, is that too many insurance professionals believe that there is little substantive difference between similar policies and that minor form language differences don’t really mean a lot. The trial bar will tell you otherwise. And we should know better.
How do I know that so many agents don’t get it? By the literally hundreds, perhaps thousands, of questions I’ve received over the years that begin with something like, “Does ‘a’ homeowners policy cover …” or “Does ‘an’ auto policy cover … .”
Opining about typical policy coverages is fine as an intellectual and perhaps educational exercise, but when answering specific coverage and claim questions, the actual policy form must be examined. Generalizations about coverage are without constructive value in resolving coverage and claims disputes.
For example, the ISO Personal Auto Policy has a “racing” exclusion, but it only applies while an auto is “inside a facility designed for racing.” Unfortunately for one agency owner, the policy which insured his testosterone-fueled teenage son had no such “inside a facility” qualification to limit the application of the exclusion. As a result, a street-racing accident involving a fatality was initially denied based on this non-ISO racing exclusion. Luckily, the accident involved a spontaneous racing incident and the non-ISO policy’s exclusion only applied to “organized” racing events, so it was not difficult to convince the adjuster that this was a covered claim.
However, if he had resided in North Carolina with its bureau-mandated non-ISO personal auto policy that all carriers must use, a denial in excess of state minimum liability limits would have been upheld because that policy’s racing exclusion also applies to “spontaneous” events which presumably would include street racing.
Same claim scenario, three different auto policies, three different outcomes, even though each policy had a “racing” exclusion.
Insurance is not a commodity. Not all auto policies are the same. Seemingly very similar language must be parsed for syntax and semantics. You must know the policies you sell and service and the differences between them. Being able to read, understand and apply policy form language is a critical skill that is a fundamental prerequisite for successfully resolving coverage and claims disputes.
To illustrate further, ISO’s “HO-3” homeowners policy, within certain constraints, has no exclusion for interior dwelling water damage caused by a roof leak. Many non-ISO homeowners policies exclude such damage unless the walls or roof have been breached by windstorm. ISO’s own commercial property forms are written that way. In addition, ISO’s “HO-3” policy, again within certain constraints, has no exclusion for repeated seepage or leakage of a water line over weeks, months or years. Many non-ISO homeowners policies exclude this, as do ISO’s commercial property forms. All things being otherwise equal, which homeowners policy is better from a coverage standpoint for a customer with an older home? Perhaps the one that covers roof and plumbing leaks.
Are these the types of things most agents consider when placing an account or do they simply rely on the prices spewed out by their comparative rating systems? If the latter, then of what value is the agent in the consumer’s buying decision compared to an online or direct purchase?
The coverage variations in commercial lines are even greater than those in personal lines, especially in the E&S marketplace. One word can make a difference. The tense of a verb may govern coverage. Punctuation marks are relevant. The meaning of words may be subject to varying interpretations. The physical damage coverage found in most auto policies applies to the auto “and its equipment.”
What constitutes an auto’s “equipment?” Is a dump truck tarp “auto equipment?” What about a detachable snow plow blade? Is this equipment covered only while attached to the vehicle? When not attached, is it covered by any non-auto policies? The answers to these questions must be known in order to properly insure the property and avoid claim disputes at a later date.
In the coming months, we will lay a foundation of principles and practices that will enable you to successfully resolve coverage and claims disputes for years to come. This series of articles will address the issues involved, with as many illustrations as we can squeeze into print, and the webinar series will dig even deeper to explore, via real-life claims and court cases, the issues. I believe you’ll find that the practical knowledge and skills you acquire will make you more competitive, better able to serve your customers, and make it far less likely that you’ll endure the angst of an E&O claim. Come along for the ride.