Demand Careful Policy Review

Because your Umbrella and Excess liability policies are legal documents some risk managers might presume that they have been subject to meticulous examination by both the insurer and the insurance agent or broker prior to being delivered. Sadly, such is too often not the case. Here is what you need to know.

A careful review of your Umbrella or Excess liability policy (or any policy for that matter) by the drafters and by the broker or agent should guarantee that the policy expresses fully the intentions of the insurance company and the expectations of the insured, and that the documents use proper grammar and punctuation. After all, these documents are often interpreted by the courts, where subtle nuances of word choice, punctuation and grammar may make the difference between a covered claim and an uninsured loss

Unfortunately, the level of quality of even the most prestigious agents, brokers, and insurers is sometimes low. Poor English is often the rule, and the readability of some policies is beyond tortuous. One judge reviewing an insurance policy compared the wording to a “linguistic Tower of Babel”

If you participate in drafting language for use in insurance policies, or other contracts, we recommend finding a copy a little book by Richard Wincor entitled Contracts in Plain English. One of the contract blunders Wincor commented on over 50 years ago still finds its way into modern insurance policies. Here is what Wincor had to say about the phrase “it is understood and agreed”

Absurd and sometimes dangerous. There is nothing wrong with "we agree as follows" or something to that effect once at the beginning of a contract, but repetition of “it is understood and agreed" adds either nothing or something. If it adds nothing, it ought not to be said. Usually, it is the case that it adds nothing because every clause in the contract is "understood and agreed" or it would not be written into it. On the other hand if it adds something, what it adds is a bad thing, namely an implication that other clauses not propped up by this phrase are somehow not understood or agreed on at all "Inclusio unius est exclusio alterius" goes the Latin maxim: by including the one, you exclude the other

Along with poor draftsmanship and grammar risk managers we recently surveyed for this article listed the following common oversights as particularly annoying:

  • Policies issued without proper authorizing signatures
  • Incorrect Inception, expiration, retroactive or other dates.
  • Incorrect spelling of the corporate name
  • Incorrect addresses
  • Incomplete or outdated list of named insureds and additional insureds
  • Incorrectly schedule limits of liability, underlying coverage, deductible or retentions
  • Missing or incorrect endorsements
  • Unexpected endorsement limiting coverage

Too frequently insurance policies are delivered with such obvious omissions, abominable punctuation, and flagrant typographical errors that one might question whether the document was ever read, let alone reviewed. Especially disturbing is the practice of some insurers who "borrow" wording from a competitor's policy form, replete with errors! The borrowing problem is most acute with manuscript and heavily endorsed policies; however, we are also aware of similar errors in preprinted policy forms.

Common causes of incorrectly issued insurance policies often stem from both human error and system inefficiencies. One primary cause is miscommunication between the insured parties and the insurance agent or broker. This can occur when details such as coverage needs, general information, or risk assessments are not accurately conveyed or understood, leading to the issuance of a policy that does not reflect the insured’s requirements or circumstances

Additionally, administrative errors, such as data entry mistakes, or misfiling of documents, can result in policies that contain inaccuracies. These mistakes happen easily in environments with high workloads or inadequate training.

While we might speculate at great length why this condition exists, the fact is that it does, and at a frequency we find alarming. Risk managers should not accept any type of contract that is less than perfect. This is especially true of insurance policies. Brokers and agents should be meticulous in their review. Policies that are less than perfect should be sent back to the insurer for correction.

If you encounter policy language that is incomprehensible or is potentially undesirable, don't hesitate to press for a written explanation or modification. Insurance policies should be negotiated by both parties.

Sending the policy back to the insurer does two important things: (1) It communicates to the broker that they are expected and will be held accountable to give your documents a thorough examination. (2) It tells the insurer that shoddy draftsmanship is not acceptable.

While getting your documents corrected may take more than one attempt, most risk managers will appreciate the extra effort. The broker or agent will also avoid the embarrassment of delivering a defective document. There is no excuse not to strive for perfection in this area.

Astute agents and brokers will be candid, advising the insured of any policy peculiarities discovered during their initial review. Ideally, such advice will also come with a plan for corrective measures. While most risk managers would prefer the results advocated by the old adage "right the first time," agents and brokers eager to point out policy deficiencies generally deserve kudos.

If you consistently receive policies with obvious errors, this may be an indication of more systemic problems with the agent or broker rather than plain oversight. Remember: Insurance policies are legal documents — treat them as such!