Author: Concerned Members of the VU Faculty
Agents, even very seasoned agents, faced with unique (or even commonplace) loss exposures look to “standard" coverage forms to find coverage or verify that an endorsement is needed. Coverage forms, being legal documents, aren't always obvious in granting or excluding protection.
Yes, many types of losses are unquestionably covered in the policy, and many are undoubtedly excluded; but there are always gray areas where the specifics of the situation and/or the adjuster's interpretation of the form may find for or against coverage. Most of these coverage gray areas seem to live within exception wording. When there is an exception to an exclusion, there is coverage - maybe.
Insurance policies are notorious for excluding losses and then adding an exception to the exclusion. This is actually the most efficient method for controlling the breadth of coverage, but it is terribly inefficient from a coverage analysis perspective. First the policy excludes an event, then it turns around and inserts the word “however" (the most dangerous word in an insurance policy) to give coverage back – in a lesser degree. This methodology is applied in nearly every type of insurance policy.
Because coverage exists in the exception, the confusion is found in understanding what activities, actions or incidents fall within the scope of the exception. Agents compare the coverage granted by the exception with the reality of the insured's exposure to find coverage, or as part of the reasoning for recommending an endorsement.
When faced with this question of coverage, agents often decide to ask the underwriter to interpret the policy and advise whether coverage exists under the coverage form. Why ask the underwriter?
First, the idea that asking the underwriter and getting a written response somehow changes the policy is absurd. The underwriter's interpretation in no way alters the application of the policy language. Absent an endorsement issued by the insurer, the policy is not changed by an underwriter's email, letter, memo, pledge of loyalty, etc. This also resolutely ignores the well-settled parol evidence doctrine applied to most contracts. In other words, presenting the claim department an email/letter from an underwriter which contradicts the plain meaning of the policy or the interpreted meaning will not be considered, unless the insurer, as an ethical matter, feels they should honor that representation, regardless of how bizarre. (This rarely, if ever, happens today.)
Second, an underwriter's interpretation of standard Insurance Services Office (ISO) policy wording, for which the underwriter has not had any input in drafting, is meaningless. What makes anyone believe the underwriter has any insight into the meaning of the provision, exclusion, etc.? This presumption borders on reckless.
Third, underwriters do not make coverage determinations, adjusters do. In fact, an underwriter's job is not coverage interpretation and asking them to make such a determination is unfair. An exception may be a specialized manuscript policy/endorsement drafted by the underwriter.
Claims adjusters make coverage determinations and rarely, if ever, consult with underwriters. And frankly, if the coverage is in question, not even the adjusters make the coverage determination – they rely on coverage counsel – either internal or external.
Why ask the underwriter? Their opinion generally carries little weight when a claim occurs. Asking the underwriter and getting a written response guarantees nothing and creates a false sense of security.
But without the underwriter's opinion, agents may be on their own because most claims adjusters are going to answer the coverage question with, “It depends." And, in fact, they are right.
An agent's job is to analyze exposures, compare those exposures to the policy, and make coverage recommendations where necessary and appropriate. When working with an exception, understand (and explain) that the activity may or may not fall within the exception, and thus be covered, but that as the specifics change so might the availability of coverage. Then offer the necessary endorsement that removes the doubt. The insured must then make a business decision.
Underwriters were hired to decide which risks the carrier should take, not to decide if coverage applies. So again, why ask the underwriter.
Last Updated: May 11, 2018