Policy Issues: Want coverage to always be "fair"? Dream on!

"Dre-e-e-e-eam . . . dream, dream, dream…."

Now back to reality. "Jim" calls his insurance agent. He makes plain that he doesn't really want this garbage, but his landlord, general contractor, mortgagee, mother-in-law or someone else says he's toast if he doesn't come up with proof that he bought the proper insurance. He says to just write whatever it is he needs, make it quick and make it cheap.

Lucky for Jim, he is probably sitting across the table from a producer or staff person whose last three years of CE credits consist entirely of various "introduction to personal auto" courses (rounded out, of course, with two hours of ethics). This "insurance" person not only fails to see the problem with Jim's attitude; he or she agrees with it-maybe not in so many words, but by spending an inordinate amount of time trying to figure out how to get around the carrier's underwriting guidelines and rate manuals. The ultimate goal? To make Jim happy by providing the minimum amount of coverage for the minimum price. Jim leaves slightly mollified (after all, it wasn't free), and the insurance person congratulates himself on providing great customer service while making another sale.

"Oh, come on," you say. "That's a gross exaggeration! Insureds aren't all that dumb, and agency folks aren't all that stupid." I agree. Which is what makes the actions so often taken by both parties all the more frustrating.

Exhibit A: E&O claims. Far too often in E&O situations, an insured claims he or she specifically asked for the broadest coverage (or at least the specific coverage that would have paid the claim involved in the E&O allegation), whereas the agent claims the insured not only didn't ask for the coverage, but wouldn't have bought it if offered the chance. Either one or both parties are bozos, or, more likely, they failed to communicate, leaving both of them with egg on their faces.

Exhibit B: Attorneys and risk managers representing insureds are often aghast at what a policy actually provides, regardless of what an insured may have requested. For example: At a conference in Mississippi, an attorney who represents small contractors asked how an agent could write a liability policy for an excavation contractor, then not mention (or notice) that the carrier had attached an endorsement excluding claims arising from dirt removal and earth-moving operations.

Exhibit C: Windstorm deductibles are standard policy attachments in a particular state. Yet when multiple storms strike, insureds and agents express shock that a carrier might apply the deductibles as specified.

And my student wants to resolve these issues and similar issues by determining what's "fair?" In Exhibit A, what's "fair" about an agent getting sued for what may have been an oversight or miscommunication? At the same time, what's "fair" about the insured having to absorb the loss if he or she truly didn't understand the coverage being provided?

What to make of Exhibit B, which the attorney insisted was not an isolated occurrence? "Fairness" implies the insured has a case against the agent and carrier. Did somebody lie to the insured about coverage available, hoping no claim would ever arise to reveal the truth? Or was the agent ignorant of the way the policy was issued? How could the carrier not have noticed it was issuing a policy endorsement that basically gutted the classification codes?

In Exhibit C, no one questions what the policy says. The endorsement clearly states that windstorm deductibles apply per occurrence. How does a rare series of multiple hurricane hits on the same properties in a single season make it "fair" to alter the wording of the contract? It might be upsetting and painful, but if no one misrepresented the coverage provided by a state-approved form, it's hardly unfair.

As politicians like to say, let me be perfectly clear. In Exhibit A the problem often arises from mere oversight or possible clerical error. Absent fraud on the part of the claimant, the fairest solution is for the carrier insuring the risk to step up and pay the claim, collecting the proper premium on the way. Then the carrier should take the agency principal in the back room, close the door and give him the parent/guilty child speech-including the traditional warning that future behavior of this sort will not be tolerated.

In Exhibit B, the insured should get the coverage he reasonably should have received, and the carrier should declare the endorsement null and void. This agent had better clean up his or her policy-review procedures. In Exhibit C, the carrier should consider the circumstances. If there is any reasonable way to consider the damage to have resulted from a single occurrence (the first storm created the breach, the second storm simply made it worse), then charge only a single deductible. Otherwise, follow the form.

That's just my opinion. Which is exactly the problem with resorting to an argument of what's "fair" in a claims situation. "Fair" is always going to be interpreted through the prism of the party expressing the opinion. What I suggested as "fair" above is certainly not going to be perceived in that fashion by most company folks.

So as the writer of Ecclesiastes would say, what is the end of all this? That we should certainly attempt to honor the concept of "fair" in our dealings with the public. But in a business that is supposed to offer guarantees in place of uncertainty, perhaps we should always begin with the assumption the forms mean just what they say and will be enforced exactly as they provide. To assume "fairness" when a claim arises is to let slide the critical need to be sure we got the coverage right in the first place.

Applying a strict interpretation to the coverage brings into full view the virtues of those who go beyond the mere guarantee. For example, those Florida carriers who have stepped forward voluntarily and agreed to charge a single windstorm deductible for the multiple storms should be praised and thanked, not told, "Well, that's the least you could do, considering what we've been through." On the contrary, those who read the forms understand the carrier's action is the most it can do.

For coverage decisions, look to those forms. Time to quit dreaming and start reading. And to all those insurance folks who are working hard to get it right and fair, this is the perfect month to say, "Thank you."