The Structure of an Insurance Policy--How to Read It (Part 8 of 8)

PART 8—HOW TO READ THE POLICY

Assuming you’ve read Parts 1–7 and are still interested in reading your policy, this post is, in my opinion (and you know what they say about those), the best way to go through your policy to see if you’re covered. Reading your policy is not an easy task—policies are a labyrinth of words and phrases. As Indiana’s Supreme Court stated: “Synthesizing the policies’ insuring agreements with their respective definitions of capitalized words and phrases is a daunting task, replete with often confusing, redundant, and sometimes circular concepts.” Cinergy Corp. v. Associated Electric & Gas Insurance Services, Ltd., 865 N.E.2d 571, 576 (Ind. 2007). So don’t feel bad, the Indiana Supreme Court even thinks it’s hard to do.

Before I proceed, please forgive me if I repeat a few points from my earlier posts. I know some people skip to last the chapter book to find out how it ends. Granted, a how-to-read-an-insurance-policy post isn’t Clancy or Grisham (it’s not even Twilight), but there are some things you should know, so I thought they were worth repeating.

You should start with the Dec Page. Check the forms listed on it to make sure you have the full policy. If you don’t have a copy of the policy or are missing a form, call your insurance company, agent, or broker to get it. Ask for a “certified” copy (this means they’re guaranteeing you the policy is all there). I like to then go to the Endorsements. Go through these to see what parts of the policy have been modified.  Each endorsement should tell you what part of the policy it is changing. I generally mark (use a pencil—trust me, you’ll make a mistake or two) the modified section in the policy. This way, I know that when I get to that modified section I shouldn’t waste my time trying to figure it out—I should just read the endorsement. 

Once you’ve done this for all the endorsements, you should find the policy’s Insuring Clause. Take a look at this language to see if the policy language appears to cover your problem. If so, great! If not, consider talking to an attorney. I’m not trying to make a shameless plug here—you don’t have to call me—but if it’s important get a lawyer involved. Don’t forget to flip back to the Definitions Section any time you come across defined terms (look for quoted, italicized, bolded, and/or all caps words).  Remember: the definitions are rarely the common meaning of the word.  

If you have coverage, you then need to check to see if an Exclusion applies. If there aren’t any exclusions that take away coverage, things are looking good for you. Finally, you need to check the Conditions to make sure you are doing what you need to do (like paying that last premium installment or letting your insurer or the agent/broker know there is an issue).

When you’re reading a policy, often times there can be multiple ways to interpret the meanings of words or phrases. In Indiana (and in many other states), the interpretation should favor coverage.  If there is more than one reasonable way to interpret the policy, it will be interpreted in favor of providing you coverage. This rule is a great asset to policyholders. In Indiana you don’t have to show that your interpretation is the most likely; you only need to show that your interpretation is a reasonable one. The Indiana Supreme Court has explained the justification for this rule: “This strict construal against the insurer is driven by the fact that the insurer drafts the policy and foists its terms upon the customer.  ‘The insurance companies write the policies; we buy their forms or we do not buy insurance.’” Am. States Ins. Co. v. Kiger, 662 N.E.2d 945, 947 (Ind. 1996), quoting Am. Econ. Ins. Co. Liggett, 426 N.E.2d 136, 142 (Ind. Ct. App. 1981).

Good luck—it’s not an easy task.

The Structure of an Insurance Policy--The Endorsements (Part 7 of 8)

PART 7—POLICY STRUCTURE

The Endorsements

Finally, the last pieces of a policy are the Endorsements. These are the other pieces of paper your insurer sends you on a regular basis (along with your bill and the Dec Pages). Issuing endorsements is how insurance companies modify your policies. (Most of the time they do change your policy, but sometimes these endorsements are not enforceable, but that’s a whole post itself—stay tuned.) Yes, this is a bit annoying. It would be easier if they’d just send you a new policy and tell you to throw the old one away. Unfortunately, it doesn’t work that way.  Endorsements can change any part of the policy, so you should pay attention to them. They can increase or decrease the limits, modify the insuring clause to expand or reduce coverage, insert or delete an exclusion—you get the picture. Don’t hesitate to call your agent/broker to ask how the change effects you.

The Structure of an Insurance Policy--The Conditions (Part 6 of 8)

PART 6—POLICY STRUCTURE

The Conditions

So far in these policy-structure posts, I’ve referenced Twilight and quoted Lee Corso—I’m impressed you’re still reading. The next section is the Conditions Section of the policies, which details the policyholder’s obligations. Failing to satisfy these conditions is another way a policyholder can lose coverage under the policy.  This section requires things such as providing the insurance company notice of a claim.  This notice requirement is probably the most important part of the Conditions section. This section also requires that you pay the insurance premiums. Yes, it seems obvious, but it’s in there.  

Depending on the type of policy, the Conditions may require you not to incur any costs associated your claim without getting the insurance company’s permission (think don’t settle a case without checking with your insurer). It may require you to provide a “proof of loss” (a detailed list of all your damaged property).  It may require you to sit for an examination under oath, which is a recorded question and answer session where you have answer truthfully.

The Structure of an Insurance Policy--The Definitions (Part 5 of 8)

PART 5—POLICY STRUCTURE

The Definitions

Have you noticed in the previous posts that I keep putting quotes around certain words (e.g., “loss,” “property damage,” and “bodily injury”)? They weren’t air quotes—I loath air quotes. It was intentional. Your policy will have quoted words (sometimes they’re italicized, bolded or in all caps instead), and these words have very special meanings. They are defined terms. Often the actual definitions are not what you would expect. You need to read them. The Definitions Section is part of the reason why “reading” (OK, those were air quotes; I suppose “loath” was a bit strong) an insurance policy is so difficult. Every time you come across a defined term, you have to go to the definition of that term and essentially substitute the definition for the term. It’s confusing enough just explaining what you have to do.

The Structure of an Insurance Policy--The Exclusions (Part 4 of 8)

PART 4—POLICY STRUCTURE

The Exclusions

After reading your Insuring Clauses, you might be thinking: “This policy is great! I’ll never have to worry—I’m covered.” To quote Lee Corso: “NOT SO FAST.” You still have to deal with the Exclusions Section. This is the part of the policy where the insurance company starts taking away things that would otherwise be included in the Insuring Clause.

For example, on your homeowner’s policy, if that “loss” (discussed in the Insuring Clause) is from normal wear and tear (that is, it’s just old), there’s a chance it won’t be covered. On the general liability policy, if you intended to cause the “property damage” or the “bodily injury,” you might be out of luck because of an exclusion.

Look out for the exclusions.

The Structure of an Insurance Policy--The Insuring Clause (Part 3 of 8)

PART 3—POLICY STRUCTURE

The Insuring Clauses

The Insuring Clause is part of the policy that tells you what it does—what it covers. For example, if it’s a homeowner’s policy it will say something like we will pay for a “loss” to “property” resulting from an “occurrence.” Translation: if something happened and there is damage to your property, the insurer will pay for it.

If you have a general liability policy, the insuring clause might say: We will pay all sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” resulting from an occurrence during the policy period. Translation: If something happens during the effective period of the policy that injures something or damages some property and you are responsible for it, the insurer will pay for it. It also should have language similar to the following: We will have the right and duty to defend the insured against any “suit” seeking damages. Translation: if someone is thinking about suing you, we will hire and pay an attorney to defend you.

This is the meat and potatoes of your policy.

The Structure of an Insurance Policy--The Dec Page (Part 2 of 8)

PART 2—POLICY STRUCTURE

The Dec Page

Picking up from my last post, my next several are on the particular parts of a common policy. It’s riveting stuff I know. The Declarations (or Dec) Page is probably the most important part of the policy.  This is the page (or couple pages) you likely receive once a year from your insurance company (other than the bill). It will list the policy number, which is just a unique identifying number for your particular policy. Often times with just this number, it is possible to recreate the entire policy.

The Dec Page also identifies the policyholder (often noted as the “Named Insured”).  If you’re a business, you want to make sure this is the proper business name and address. The Dec Page will have the policy period (the period of time the policy is in force), the policy limits (the amount of money the policy will pay), and often the general types of coverage.

Finally, the Dec Page should identify the forms that are used in your policy. Generally, insurance companies use forms for their various policies. They don’t write unique language for your policy (sorry, you’re not that special). Insurance companies have set forms with “approved” language. The Dec Page tells you which forms make up your policy. This is how you can recreate your policy with just the Dec Page. 

The Structure of an Insurance Policy--General Overview (Part 1 of 8)

Have you ever actually read through your insurance policy? If so, you’re a masochist; welcome to the club. If not, congratulations—you’ve saved yourself a migraine. Insurance policies are brutal to read.

Even if you did read it, did you understand what it actually said? Fortunately for you, I’m a “coverage geek” (many co-workers call me this; I tell myself it’s a term of endearment—the jury’s still out on that though). With the next several of posts, I hope to help you understand the basic structure of an insurance policy and some of the general rules of constructions that are used to determine their meanings.

Because of the length, I’m going to do this is in eight parts. Plus, that’s how movies are done these days (think Harry Potter or Twilight). Side bar: Did I really just refer to Twilight?

Just so we’re clear, the legal disclaimer at the bottom isn’t lying. THIS IS NOT LEGAL ADVICE. However, I hope it is helpful.

PART 1—POLICY STRUCTURE

General Overview

A typical insurance policy has six sections: (1) the Declarations Page (a/k/a the “Dec Page”); (2) the Insuring Clauses/provisions (a/k/a the coverage grant); (3) the Exclusions Section; (4) the Definitions Section; (5) the Conditions Section; and (6) the Endorsements.

Generally, you receive a full copy of your policy the first time you purchase it. However, if you renew the policy, you won’t receive another copy. If the policy changes, you won’t get a revised version. The insurance company is only going to send you Dec Pages and Endorsements. Not to fear, if you threw out the policy, the insurance company/agent/broker should be able to provide you with another. However, this is the part where I tell you make a note to yourself: “NEVER THROW OUT INSURANCE DOCUMENTS!” Honestly, don’t do it. I keep mine in my safety deposit box.

Landlords: Do you think damages from a meth lab on your rental property are covered under your policy?

Most landlords would probably answer yes, damages from meth labs are covered under an insurance policy. We agree. It has been our experience, however, that the claims are routinely denied under inapplicable exclusions. Landlords should seek coverage counsel in order to secure coverage for these claims. One common defense insurers rely on is the “criminal activity” exclusion. Insurers deny drug lab contamination claims on the basis that the contamination was caused by criminal activity, and their policies do not cover property losses caused by criminal activity. For the criminal activity exclusion to apply, it must be the policyholder that engages in the criminal activity that causes the loss. If the property loss is caused by a tenant at a rental unit, and the rental unit owner did not know (and had no reason to know) that the criminal activity was occurring, the exclusion does not apply.

Under first-party property coverage, insurers also claim that there is no covered “peril” for which the insurance applies. Though there is no Indiana coverage law interpreting meth lab cleanups under insurance policies, other jurisdictions have found that the damages from meth manufacturing are caused by “smoke” and “vandalism”—both covered perils under standard property policies. Indiana courts would also likely find that meth manufacturing is “criminal mischief,” another commonly covered peril.

PSRB has argued successfully against each of these exclusions and has secured coverage for all or part of the damages done to these rental properties. But coverage for drug manufacturing does not stop with first-party property coverage. These claims are standard environmental claims, and coverage is also available under the liability coverage in most policies. Insurers' typical defenses against environmental claims—pollution exclusions (both standard and absolute), personal injury coverage, suit, damages, all sums, owned property—all have been resolved in favor of policyholders. Indiana courts have given a narrow reading to standard liability policy exclusions or terms that insurers have tried to apply to reduce or eliminate coverage for standard environmental claims. Though yet to be tested in Indiana courts, this should hold true with respect to drug manufacturing claims as well.

Meth lab cleanup cases demonstrate the importance of allowing coverage counsel to review claim denial letters. Understanding policy language and how courts apply that language can provide quick results for the policyholder.

If you have been denied coverage for damages sustained from a drug lab, we are happy to evaluate the denial. Please contact me.

The Types & Layers of Insurance Coverage

It’s important to understand the type of insurance you have—and need. Insurance comes in many shapes and forms. With this post, I hope to give you a primer on the general structure of insurance.

Policyholders need to know the difference between the types of coverage and the layers of coverage they have. The types of coverage companies typically have include general liability, property, automotive, and workmen’s compensation.  Other coverages are (but aren’t limited to) products liability, foreign liability, director’s and officer’s liability, and errors and omissions. 

As the phrase suggests, the “type of coverage” describes the things your policy will cover. For example, property coverage generally covers damage to your property. Liability coverage provides a defense and an indemnification for liabilities to third parties (think slip and fall). An automotive policy, not surprisingly, covers your vehicles.

While policyholders often have different types of coverage, they also likely have different layers of coverage. Policyholders commonly purchase layers of coverage.  By doing so, policyholders can often lower the total premium they would pay for the same amount of coverage under a single, high limit policy.

The layers of policies are often termed “primary,” “excess,” or “umbrella.” The primary policy is the first policy to respond. Once the primary policy’s limits are exhausted, the excess (or possibly the umbrella) policy will step in and continue to cover the claim. Umbrella policies are designed to serve as both a primary policy and an excess policy. The umbrella policy functions as high excess policy above the primary policies, while at the same time serving as a primary policy in those areas of coverage without a specific primary policy.

Really, the best way to explain the “types” and “layers” of coverage is to illustrate it.

This chart is an example of a company’s potential coverage in a single year. The types of coverage run along the x-axis, while the layers of coverage (and their amounts) are on the y-axis. Primary policies sit first, with the excess policies above them. The umbrella policy sits as the high excess policy for most types of coverage, but fills in the gap of coverage for the Foreign Liability.

If you have questions about any of this, feel free to contact me.

Welcome to the Indiana Insurance Coverage Blog

Welcome to our blog. I’m Greg Gotwald; my co-contributor is Tonya Bond. We decided to start this blog to help inform policyholders of their rights against insurance companies. We’re both attorneys working at Plews Shadley Racher & Braun LLP in Indianapolis focusing on corporate insurance recovery, though we handle individual recoveries as well.

Insurance affects everyone—companies and individuals.  Liability, property, auto, life—you cannot avoid insurance. I’ll admit it—not all insurance companies are bad. If an insurer does what it’s supposed to do, we don’t hear about it. However, we’ve seen enough to know that insurers sometime take ridiculous positions.

We’re not personal injury attorneys, but the premise of a lot of their commercials is right: When dealing with insurance companies, know your rights. Arguing with the insurance companies is a daunting task. Most of the time, you don’t have the policy to review. Even if you have the policy, they are written in such a way the average person can’t begin to understand it. Unfortunately, policyholders often have to hire an attorney to get the issue resolved.

If you find yourself in a battle with your insurer, don’t give up hope. As a policyholder you have generally have the law on your side. Hopefully with this blog, we’ll be able to share some of our knowledge and experience to help you work through your issues.