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.