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This
article was published in Trial News
December, 2000.
How to Read an Insurance Policy
Insurance policies are the
most ignored documents of commerce. Our clients
certainly don’t read them, either before or
after a loss. They expect us to unravel the most
arcane policy terms, yet few lawyers have the
training, experience, or patience to do so.
Indeed, lawyers unfamiliar with coverage disputes
seem to avoid reading policies. Instead, they call
friends or post messages on the internet asking
questions which cannot be answered without a
careful reading of the policy.
Lawyers don’t read
policies because they don’t know how. Here is a
short primer. Reading policies is a kind of
treasure hunt, once you know where to look.
Get the
Complete Policy
Sometimes just obtaining
the policy is a challenge. The client probably
misplaced vital portions of the policy, or may not
have a copy which corresponds to the loss date.
Always demand a certified copy of the
policy from the carrier. This is simply a copy
which the carrier assembles and swears is accurate
as of the date of loss. That said, the certified
copy may or may not be accurate.
The certified policy was
created by a clerk at the company. The clerk
looked at a computer printout of coverage and form
numbers, then assembled a new policy from
specimens. Compare the certified policy with
whatever the insured can furnish. If some
coverages vary from year to year, find out why.
Sometimes the insured will keep the little
pamphlets and explanatory notes which come with
renewals. These can help explain policy terms and
changes.
Understand
the Policy Structure.
All policies have four
basic parts: declarations, conditions, insuring
agreements, and exclusions. Multi-peril policies
(like a car policy which covers both first and
third party claims) will have conditions, insuring
agreements and exclusions for each coverage
included in the policy.
Declarations.
This is the customized page of the policy. It
identifies who is insured, what risks or property
are covered, policy limits, and the effective
dates of coverage. It contains a list of form
numbers and endorsements, and this is where the
fun starts.
These form numbers
identify every portion of the policy. By carefully
checking form numbers against the pages of the
policy, you can tell if you have a complete
policy. You can also find edition dates on the
form numbers and compare them to edition dates on
the policy pages, and to the effective dates on
the policy.
Carriers often make
mistakes in assembling certified policies. Unless
you carefully analyze and compare form numbers,
you will never know if your certified policy is
complete or accurate. Over the years, I have found
many instances where the certified policy was
incomplete, or contained coverage forms which were
published after the date of loss.
The Declarations also tell
you the identity of the insurance company. Some of
us have learned the hard way that Farmers
Insurance Group is not an insurance company. To
sue the correct entity, you need the proper name
of the company. This will be found in the
Declarations.
Conditions. Conditions
are simply requirements the insured must fulfil to
obtain coverage. You’ll find them in a separate
section labeled "Conditions Applicable to
Entire Policy," or "General
Conditions." You will also find conditions
within each coverage part – applicable only to
the coverage part in which they are found
(liability, PIP, UIM, collision, etc). Conditions
often represent traps for unwary counsel.
Most property policies
contain conditions which limit suit to within one
or two years after the loss. This clause has been
upheld in Washington. Simms v. Allstate Ins.
Co., 27 Wn. App. 872, 621 P.2d 155 (1980); RCW
48.18.200. Many policies require the insured to
comply with all policy conditions before bringing
suit on the policy. See, Tran v. State Farm,
136 Wn.2d 214, 228, 229, 961 P.2d 358 (1998). It
can be difficult, then, to bypass examinations
under oath, arbitration clauses, and similar
conditions by filing suit. Counsel must read both
general and specific conditions before planning
prosecution of a case.
Definitions usually appear
in general conditions, but can also show up in
conditions applicable to specific coverages.
Usually, the policy will show defined terms in
bold face, so the reader knows to search for
definitions of bold terms. Absent a definition in
the policy, undefined words will be given their
plain, ordinary and popular meaning. Greer v.
Northwestern National., 36 Wn. App. 330, 674
P.2d 1257 (1984); Crunk v. State Farm, 39
Wn. App. 501, 686 P.2d 1132 (1984).
Always read
policies with a stack of dictionaries close at
hand. If common-usage dictionaries differ on the
definition of a key term, the court can find the
term ambiguous. If policy language is ambiguous,
reasonably susceptible to more than one meaning,
the Court must adopt the meaning favorable to the
insured. Government Employees Insurance v.
Titus, 18 Wn. App. 208, 566 P.2d 990 (1977); McDonald
Industries v. Rollings Leasing Corp., 95 Wn.2d
909, 631 P.2d 947 (1981); Boeing v. Aetna,
113 Wn.2d 869, 784 P.2d 507 (1990).
Insuring
Agreements and Exclusions.
Here is the meat of the policy. The insuring
agreements state what is covered; the exclusions
take coverage away from the insuring agreements.
Read them with the following in mind:
Exclusionary clauses are to be most strictly
construed against the insurer in view of the fact
that the purpose of insurance is to insure, and
the contract should be construed so as to make it
operative rather than inoperative. Phil
Schroeder, Inc. v. Royal Globe Ins. Co., 99
Wn.2d 65, 68, 659 P.2d 509 (1983), modified on
reconsideration, 101 Wn.2d 830, 683 P.2d 186
(1984). Put another way, insuring agreements
should be read expansively, while exclusions are
read strictly. These principles help create
coverage out of chaos.
Is
the Policy Filed with the Commissioner?
RCW 48.18.100
provides:
(1) No insurance
policy form . . .shall be delivered, or used
unless it has been filed with and approved by the
commissioner. This section shall not apply to
policies, riders or endorsements of unique
character designed for and used with relation to
insurance upon a particular subject.
Most policy
forms, then, have been approved by the
Commissioner before the policy is issued.
Sometimes the approval seems to have been
automatic, while in other cases it is subject to
some debate. When an officer at the Insurance
Commission takes issue with a policy form or
endorsement, the result will be a series of
letters between the carrier and the
Commissioner’s office discussing what the form
is intended to accomplish. This written debate can
be useful, particularly when the carrier is asking
the Commissioner to approve a form because it will
provide broad coverage. This material is available
from the Commissioner.
Does
the Policy Comply with the Law?
In property
insurance, every policy must comply with RCW
48.18.120, which authorizes the Insurance
Commissioner to adopt rules promoting uniformity
in property insurance. Pursuant to that authority,
the Commissioner promulgated the following:
(3) Except for
the provisions of the next succeeding three
paragraphs, no company shall issue any basic
contract of fire insurance covering property or
interest therein in this state other than on the
form known as the 1943 New York Standard Fire
Insurance Policy, herein referred to as the
'standard fire policy': . . ..
(c) As an
alternative form, a form written in clear,
understandable
language, which provides terms, conditions and
coverages not less favorable to the insured than
the 'standard fire policy,' may be used. . .
."
WAC
284-20-010(3). The use of standard policies in
fire insurance can be traced to the establishment
of the National Board of Fire Underwriters, in the
nineteenth century. The board drafted the first
standard policy in 1886, the New York Standard
Policy, colloquially called the "112
line" policy. Since then, New York has
drafted and adopted two new standard contracts:
the 1926 "200 line" policy and the 1943
"165 line" policy. Forty_two states have
adopted the 1943 "165 line" policy. Borman
v. State Farm, 521
N.W.2d 266, 269 (Mich. 1994). See, also, Fireman's
Fund Ins Co v Dean, 212 Ga.App. 262; 441
S.E.2d 436 (1994); Osbon v National Union Fire
Ins Co, 632 So. 2d 1158 (La App, 1994), both
holding that carriers cannot offer less coverage
than that required in the Standard Policy. This is
true even when the policy filed has been approved
by the commissioner. Ponder v Allstate Ins. Co.,
729 F. Supp 60, 62 (ED Mich., 1990). If some
coverage or condition in the policy is less
consumer-friendly than the Standard Policy, the
court should reform the policy for the benefit of
the insured.
Underinsured
motorist coverage is regulated by the legislature.
RCW 48.22.030 defines the term "underinsured
motor vehicle," and sets out various coverage
and condition requirements.
The statute
becomes a part of and should be read into the
insurance policy. Touchette v. Northwestern Mut.
Ins., 80 Wn.2d 327, 494 P.2d 479 (1972). Any
policy term or clause which contradicts the
statute is void. Again, the statute reforms
portions of the policy which may not comply with
the law.
Compare
the Policy – with Itself
Often the battle
is over the meaning of a word or two. If the
dispute concerns liability coverage, does the key
word appear elsewhere in the policy? In what
context? By reading the entire policy, the
disputed portion often appears in context for the
first time. Courts will expect the policy to read
as a consistent, integrated document.
Look for other
policies by the same carrier. Words like
"caused by" and "arising from"
can have disparate meanings, especially if the
carrier uses them differently in different
policies. As the court said in Boeing v. Aetna,
"[T]he industry knows how to protect
itself and it knows how to write exclusions and
conditions." 113 Wn.2d at 887. Nothing the
carrier writes into a policy should be ignored, or
considered accidental.
Conclusion
Go
ahead, enjoy the hunt. Get a complete, accurate,
certified copy of the policy.
Understand the
structure of the policy, and read it with
dictionaries at hand. Review the basic tenets of
policy interpretation as you comb the fine print
for treasure. |
