WELCOME TO APRIL! My daily insurance news service is overflowing with great headlines today. First, a state Supreme Court finally ruled on ISO's “impaired property” CGL exclusion and found it valid. The court praised ISO's verbiage as “a model of clarity,” adding, “We find nothing even remotely ambiguous in the language and thus find for the insurer.”

In further coverage news, ISO admitted it made a “huge mistake” in modifying its homeowners form's coverage provision for students away at school. ISO announced it will immediately file a notice to carriers and state insurance departments to withdraw the revisions and revert to previous form wording, effective nationwide April 1.

Last, but not least, Mississippi's attorney general withdrew his lawsuit over Katrina flood-damage coverage interpretations. He sheepishly admitted, “I should have just read the policy. It's perfectly clear that flood damage is not covered under the property forms, and now I feel a bit foolish. Sorry for the trouble, and I hope the insurance carriers of Mississippi will forgive me and continue to do businesses in our great state. I vow to leave all future insurance issues and disputes in the hands of my respected colleague, the Mississippi insurance commissioner. Hey, what's a lawyer doing messing around with insurance anyway, right?”

April fool! Ah, but you already knew I was joking, didn't you?

Wikipedia, the free online encyclopedia created by submissions from readers around the world, includes over one million articles. Of particular interest this month is one about the origins and manifestations of the pseudo-holiday known in the U.S. as April Fools' Day. Although you may consider the occasion simply an excuse some idiot made up to play practical jokes on unsuspecting victims, the concept is surprisingly universal. Around this time of year, people from various cultures play pranks on one another in keeping with traditions whose origins are shrouded in the mists of legend and antiquity.

The Wikipedia article also lists the most famous April Fools' Day hoaxes perpetrated over the years. While some seem quite clever, and others leave you wondering what the perpetrators smoked that led them to believe anyone would appreciate the gag, all have one thing in common: Someone is played for a fool, and hilarity is meant to ensue when the joke is ultimately revealed. Typically, unsuspecting victims are at first taken in, only later to find they have become the “fools” of the day's title. And how do said victims feel when their foolishness and gullibility are revealed for all to see? No doubt the joke's perpetrators expect sheepishness and perhaps a bit of embarrassment, but mainly laughter and praise for the cleverness of the prank.

Would it surprise you to learn that often the resulting emotion isn't quite so good-natured? And in fact, the victims may become downright angry at being played? In those cases, the pranksters appear shocked. Why would someone get so upset, simply because they were duped into trusting someone and then made to look a fool? Can't they take a joke?

Which brings us to insurance.

While recently teaching a series of E&O and ethics seminars in various parts of the country, I was amazed at the number of attendees who failed to grasp the anger-at-being-made-to-feel-foolish syndrome. I wondered if these unsympathetic folks had ever felt the shame of being made the fool–publicly. Were they never a male teenager who finally summoned the courage to ask the vision of beauty who haunted his dreams for a date, only to be cruelly rejected in front of her friends (and perhaps his)? Had they never waited by the phone for an invitation to the dance or the draft for the team, believing that everyone else would get the call and the next day at school would know who hadn't been chosen? Did they not understand from personal experience the expression “laughing through the tears?”

How else to explain why agents are surprised when insureds rely on their word that something is covered and then, when claims are denied, feel they've been wronged? For example:

–After a hurricane or other catastrophe destroys a home, and the rebuilding costs far exceed the coverage limit: “If they didn't think Coverage A was enough, why didn't they say something? You know they would never have bought ordinance-or-law coverage anyway.”

–A commercial loss requires extensive time to rebuild, and the insured has no business-income policy: “Hey, the guy didn't even want fire coverage. You really think he would have coughed up the additional money for business-income coverage?”

–The insured overlooked a policy provision or endorsement: “These people are adults. They're responsible for reading their own policies.”

–For years the agent renewed the policy “as is,” but is shocked when the insured reports a claim arising from an activity the agent knew nothing about: “I asked her if she had made any major changes, and she said no. How was I supposed to know she installed a mechanical bull in the bar?”

–And my current favorite: “What part of '23 feet below sea level' didn't they understand?”

While such claims undoubtedly involve some mitigating circumstances, and I'll admit the insureds may bear some responsibility for their losses, an inescapable pattern still emerges in the above agents' responses. Basically, it seems, “We know you suffered a loss, but it's your fault.”

Just like a victim of an April Fools' Day prank, the insured who trusted his or her agent and now faces an uncovered claim is designated an idiot–and at the worst possible time. Thought your homeowners replacement cost actually meant you'd get a new house? April fool! Thought owning property outside a designated flood zone meant you'd never need flood coverage? April fool! You believed “all risks” meant “all” and “full coverage” meant “full”? Ha, ha, ha!

For some reason, many insureds who are exposed as fools seem to lose their sense of humor. Why, it took entire committees months, or even years, to choose just the right policy language and technical jargon to pull off the deception. Don't people appreciate how hard it is to create clever wording that hides true meaning? That's the real measure of a great practical joke–no one sees it coming until the trap is sprung. Gotcha! April fool!

May I make a suggestion? Although I truly consider insurance fun, there's a huge difference between a game and a trap. In a game, everyone knows the rules and how the score is tallied. Both teams do their best. Sometimes you win and sometimes you lose, but you always play fair and shake hands afterward, whatever the outcome. The best games are played against the best opponents, and sharing tips and techniques among fellow players on all sides is not only standard procedure; it's often encouraged. In contrast, a trap plays someone for a sucker and reveals his or her inferior ability, causing not only embarrassment, but often pain as well. A wounded animal is also an angry one, and when trapped animals are human, they don't just snarl and bite–they call attorneys and file E&O claims.

When you read about, hear about or even experience an E&O claim, is your first thought, “They should have known better and called us!” or “We should have known better and called them”?

If it's the latter, congratulations! You know how the game is played, and play it fairly and well so you can enjoy that post-game handshake or “high five” with your insureds.If it's the former, perhaps you're so buried under the ever-increasing burden of growing your agency that you've lost touch with insureds who don't take the initiative to interrupt you and demand your attention. If that's the case, when you extend your hand after the game, instead of shaking it, your insured may slap it with lawsuit papers.

Now who's the April fool?

Special Reports /

Policy Issue: No Fooling-Clients Are Counting on You to Get it Right

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