Resolving Claim Disputes: Step 1…The RTFP Doctrine

If you have been following this 12-part series, welcome to the home stretch. In the first six articles, we’ve examined why claims are denied and how to avoid or prevent such denials, concluding with an introduction to a four-step process that enables us to resolve claim denials that we were not avoided or prevented. Exploring that process in great detail is how we will spend the second half of this series.

Last month, we addressed a “Step 0” that involves determining if an initial claim denial meets statutory and regulatory muster, especially unfair claim settlement practices laws. A claim denial that does not meet proper legal standards is, or should be, invalid as a matter of law. So, by reaching this stage of the claim denial process, we are assuming that the denial complies with at least minimum legal standards and all that remains to be determined is whether or not there is coverage.

That brings us fully into the four-step process of resolving a claim denial. Those steps are: (1) read the policy form(s)…again, (2) interpret the form language within the context of the claim, (3) research and document your interpretation, and (4) plead your “case.” As mentioned in the May column, most often the process ends with Step 2 or Step 3 because your conclusion is that the adjuster is correct.

However, the premise from this point forward in the series is that there is a difference of opinion from that expressed in the claim denial. In this month’s column, we examine Step 1 and the importance, whatever your role in the insuring process (underwriter, agent, adjuster, etc.), of reading and comprehending the policy form(s) in dispute.

In my book “When Words Collide: Resolving Insurance Coverage and Claims Disputes,” which is the basis for this series of articles, I present about a dozen policy interpretation doctrines. In this column, we’ll examine perhaps the most important one and next month we’ll examine many of the others. Three of the last four columns address an additional 17 – largely legal and contractual principles – that can serve as incredibly powerful interpretive tools to equitably resolve coverage opinion disagreements amicably.

But we begin with the critical doctrine for resolving claim disputes, the “RTFP!” doctrine. So, what does the acronym “RTFP!” stand for? “RTFP!” means “Read The…Policy!” I’ll leave it up to your imagination as to what the missing letter in the translation might stand for, but a sanitized option is the word “Full.” I’ll say it once, it is IMPOSSIBLE to determine coverage without reading the policy form(s).

However, reading the policy does not begin with the reporting of a claim. It is IMPOSSIBLE to sell or service insurance without reading the policy forms available to address the unique exposures of each prospect or insured. For insurance agents, reading insurance policies begins with the licensing process and continues throughout the agent’s career. How can you sell and service an evolving product line without knowing how the product works?

A friend of mine used to sell medical devices such as artificial hips, knees, shoulder joints, etc. On occasion, he would observe surgeries by doctors new to his products in the event that answers to questions were needed. How effective would he be, and what might be the consequences of his answers and recommendations, if his knowledge of how these devices worked was limited to his having read a few brochures, attended a couple of webinars, and gathered a little “We’ve always heard that…” folklore from associates?

Yet, that’s how too many agents sell and service insurance. While someone’s physical health is rarely at risk, their financial health could be ruined for decades to come because of bad or inadequate advice. To illustrate, I received a question from an agency commercial lines manager who held the Certified Insurance Counselor (CIC) designation by The National Alliance. The question was whether a liquor store needed liquor liability insurance. The agency staff “had always been told” that, unless there was liquor consumption on the premises, there was no need for liquor liability coverage, that commercial general liability (CGL) coverage would suffice.

Having consulted in probably somewhere in the neighborhood of 100,000 coverage or claims disputes over the past 30 years, far too many times I’ve been asked coverage questions that begin with “Does ‘a’ homeowners policy cover…” or “Does ‘an’ auto policy cover…” or “I’ve always heard that…” One cannot generalize about types of policies or rely on folklore to prevent or resolve coverage and claim disputes.

In addition, exceptional agents are problem solvers, not policy peddlers. They don’t simply provide the coverage that prospects and insureds, who are largely ignorant of exposure analysis and insurance, specifically ask for. They assist them in risk analysis and offer tailored solutions, not cookie-cutter, one-size-fits-all remedies.

In order to assist individuals, families, and businesses in minimizing their exposure to serious financial loss, it is necessary not only to understand the primary policy forms that are indicated, but to also be aware of the coverage and risk management options available. It is also necessary to be wary of the exclusionary or restrictive policy forms that carriers often include in policy deliverables that may create loss exposures that didn’t exist under the unendorsed policies.

One cannot generalize about types of policies or rely on folklore to prevent or resolve coverage and claim disputes.

The only way to do this is to read and understand the product lines your agency sells and services. Does that mean you have to know every detail of every policy form down to the punctuation and tense of verbs? As we’ll learn later in this series, that “just-in-time” knowledge of that type can be extraordinarily helpful in reversing some claim denials but, no, it’s impossible to know everything about thousands of policy forms, especially in advance of their application to the specific circumstances and details of a claim.

As an aside, anyone who reads my website blog knows that I often write about insurtechs, and usually not in a flattering way. However, exposure analysis and coverage matching is an ideal product to build an insurtech firm around, one that works with industry players and not as a so-called “disrupter.” Technology, empowered by artificial intelligence, data science, and analytics, can be employed as an industry-altering risk management tool.

Let’s start with eligibility vs. coverage. Just because a Corvette isn’t eligible for a particular insurer’s personal auto policy doesn’t mean that there is no coverage if such a vehicle is acquired mid-term, unless the insurance contract says so. Just because a vehicle like a dump truck isn’t eligible for declaration on a personal auto policy doesn’t mean that there is no liability coverage for an insured while driving one, unless specifically excluded.

Policy foundational documents like the application, binder, and declarations page may all be material to coverage, especially if there are conflicts with policy language. Beyond that, we seek answers to questions specific to the policy forms and endorsements.

Is the insuring agreement triggered? Is the person seeking coverage an insured or otherwise a beneficiary? Do any exclusionary provisions apply? Are there any restrictions or limitations expressed in policy conditions? Of particular importance are terms defined in policy forms and potentially troublesome are the many undefined terms in policies.

Usually of even greater importance are exclusions since those are what most often form the basis for coverage denials. Are cited exclusions clear and conspicuous in the policy? Courts say they must be. Are they potentially ambiguous? Ambiguity is the mother of all policyholder coverage lawsuits. Might an exclusion be considered unconscionable, or even illegal? Over the years, I’ve lost count of the number of times I’ve seen a claim denial based on an erroneous interpretation of a “wear and tear” or “mechanical breakdown” exclusion.

What about misapplication of policy provisions like coinsurance, insurable interest, subrogation, and other conditions?

For example, could the “Pair Or Set” clause found in most homeowners policies be used to address “matching” claim denials for undamaged roof shingles, vinyl siding, or other real property features? I can tell you that I used this clause to get 16 new custom shutters following tornado damage to my home, even though only six were damaged. Knowledge is power.

Next month, we’ll take a look at several other policy interpretation doctrines that lay a foundation for the following three months when we examine up to 17 powerful legal and contractual principles that govern claim resolution.

In the meantime, I would encourage you to accept the challenge that my primary industry mentor, the late John Eubank, CPCU, ARM, used to pose to his insurance students.

Invest just 15 minutes per work day in reading policy forms, reference manuals, and related educational and research materials and a year from now you’ll have accumulated 60 hours of quality, self-directed learning, probably five times your annual CE requirement.

RTFP!