Understanding Coverage from Dawn's Early Light
December 2005
A couple of months ago, Jack Gibson, in his
opening dialog in IRMI Update
122, questioned the increasing lack of both understanding and cooperation
within the insurance industry, between the underwriting side and claims. This
isn’t something new; it has been somewhat of a problem for years. Yet, it seems
to have become more prevalent during the past decade or so.
by Peter
M. Polstein
There is no question, that the claims side of the industry has flexed its
muscles on far more occasions than in the past. It begs the question of whether
the insurance industry has taken a position that, despite policy language, tested
or otherwise, loss adjustment may be a major factor in the ability of the industry
to manage their loss ratios. One might even suggest that with the overall market
conditions, where market share has been prevalent, and in many cases physical
underwriting less than profitable, loss adjustment becomes a critical control
factor.
Time and time again, I have seen occasions where there has been an either
partial or total breakdown in the understanding of the terms and conditions
of policies. Over the years, I have taken the position of "Don’t tell me what
was intended; what does the policy say?" You can mitigate some, if not all,
of this potential problem by any number of negotiating methods prior to binding.
Just consider the continued battle over the World Trade Center placement,
where a number of positions have been taken by the insured, underwriter, loss
adjusters, and the courts. Wouldn’t it make sense, when negotiating coverage,
especially on larger accounts, to do so in the presence of both the underwriter
and claims personnel? This is especially true if the coverage is being negotiated
using a manuscript form. You might as well understand from "dawn's early light"
what the policy not only intended, but in actuality, what is physically covered.
Now, there is no question that there will be occasions when a court will adjudicate
cover. The world does change, but in broad terms, that’s usually a case where
there is liability, as opposed to first-party loss.
Two years ago, I wrote an article where
I suggested that creating so called "towers of coverage" created an insurance
environment which left a great deal less confusion on the part of all parties
to the contract. This necessitates using a primary policy form, with language,
broad or otherwise, where all participants agree on underwriting and claims,
not only on the intent, but the meaning of the cover.
Any layers above the primary would, out of necessity, "follow form" in their
entirety, thereby providing what should be a singular solid block of coverage.
It also eliminates the use of multiple pages of language, as each ascending
layer simply "follows form" subject to the negotiated rating per layer. Had
the placement on the World Trade Center been in this fashion, there would have
been little, if any, discussion of what was or was not covered, or how many
occurrences. From a liability standpoint, I have argued ad nauseam that layers
of so-called umbrella coverage, where most, if not all, participants have their
own language, is tantamount to a loaded gun under the right claims circumstances.
There will be those who argue that the market no longer has the capacity
to entertain this exercise. Don’t believe it. Good business is, in and of itself,
a motivating factor. And the broker/agent who fully understands the insured’s
potential for risk and the appetite to assume risk, and can present this in
a forthright manner, with equitable terms and conditions, will be heard.
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