Despite the industry's efforts to automate the insurance experience, there is still one area that demands and requires the mental expertise of an individual—that is the area of insurance coverage analysis.
Coverage analysis requires a disciplined approach to policy contract interpretation in light of the facts surrounding the occurrence. Compounding the complexity is the sheer "messiness" of language, causing simple translation to become onerous in light of multiple meanings or interpretations of a word or phrase. Regional and trade usage may also need to be considered when analyzing policy terms.
External sources frequently play a role in coverage analysis. Legislators may pass laws that change how policy provisions are implemented. Insurance administrators and commissioners may pass regulations that impact the language. And, let's not forget about the court system, which has broad powers for interpreting language but often minimal knowledge or experience in working with insurance products.
By using a systematic approach to coverage analysis, the claim professional will be able to reach an educated opinion as to whether or not coverage applies and will be able to support that decision. A logical approach removes emotion from the decision process and creates a path or knowledge tree that will lead to correct interpretation of policy language.
The following questions outline a path for interpreting coverage provisions and applying policy provisions.
Is the Person/Entity Involved Covered?
Many policies cover only the insured's named in the declarations page or specified in the policy. Some policies define insured more broadly, so a determination must be made as to whether the parties who suffered the loss are covered under the specific policy being reviewed. Since many homeowners' policies extend 'insured' status to relatives, the relationship of the involved persons must be explored and clarified.
Some homeowners insurers have added limited home-based business coverage to their standard policy form, extending personal lines forms to a business venture.
Did the Loss Occur during the Policy Period?
For the most part, policy periods begin and end at one minute after midnight. Date and time of loss are used to determine whether or not the loss occurred during the policy period. Claims-made policies have not been widely used in personal lines, but if one is encountered, then trigger dates must be determined and considered when determining whether the loss occurred within the policy period.
Is There Coverage for the Cause of Loss?
Named perils coverage specifies causes of loss that will be covered by the policy. Definitions of causes of loss are not often included in the policy and are therefore subject to court interpretation. Definitions, as assigned by the courts, will vary by jurisdiction. Claim professionals will want to be aware of court interpretations to understand how the language has been clarified to either extend or reduce coverage. Other resources for defining policy terms include statutory provisions and standard dictionaries.
It is important to remember that broad form or special form coverage will usually extend coverage to every cause of loss not specifically excluded.
Is the Property or the Injury Covered?
The declarations page or the definition of what is covered are two of the most frequently referenced contract areas for determining if the property at issue is covered. If the property involved in the accident does not appear in the declarations or fall within the definition of what is covered, coverage may have to be proven another way. For instance, some policies provide coverage to newly acquired vehicles or property.
For third-party claims, the policy will specify whether bodily injury claims are covered and to what extent.
Is the Type of Loss Covered?
Was there a direct loss from the peril insured against or consequential, or indirect, loss? Many property policies cover direct losses only; other policies cover some aspect of indirect losses.
Coverage for intentional acts must be evaluated at this point as well. Generally, covered acts must be unintentional on the part of the insured. Courts have broadened that concept and require consideration as to whether the outcome of the intentional act (the property damage or bodily injury) was also intended.
Are the Damages Covered?
Once the damages have been established, a review of the contract is necessary to determine if the policy will cover the substantiated damages. Persons may experience damages that are a result of either a direct or indirect loss to tangible or intangible property.
For liability losses, damages fall into two broad categories, compensatory damages and punitive damages. Many policies simply state the insurer will pay damages for which the insured is legally liable to pay for bodily injury or property damage. Generally, when the term "damages" is used, it refers only to compensatory damages, such as special damages which are out of pocket damages, or general damages such as pain and suffering.
Most states preclude insurance coverage for punitive damages under the premise that punitive damages are meant to punish the insured for egregious behavior. Purchasing insurance coverage for willful and wanton disregard of the rights of another would be unconscionable and against public policy.
What Geographic Territory Is Covered?
Policy territory is usually defined in the policy terms and the location of the loss must be within the policy's territorial limits. Most personal lines policies cover losses in the United States only; however, coverage is often broadened to include Mexico and Canada. Personal umbrella policies provide worldwide coverage.
Are There Applicable Exclusions?
Exclusions to coverage can involve a number of aspects. Certain persons, causes of loss, types of property, types of damage, and other circumstances may be addressed by a specific exclusion limiting or entirely excluding coverage. A careful review of the exclusions will reveal any areas in which coverage has been precluded.
Is There Other Applicable Insurance?
Application of the other insurance clause varies by policy. Some policies respond only if no other insurance applies or only above the limits provided by other insurance. Other policies provide concurrent payment if other policies exist. Once the claim professional is aware of other potential coverage, coordination of coverage must be conducted.
It is not infrequent that concurrent policies may specify different applications of other insurance. A special effort may be required to coordinate concurrent coverage. There are also numerous court decisions on this issue that may require review to make an equitable application of all available coverage.
Are There Other Miscellaneous Provisions to Consider?
Often, deductible amounts or amount payable specifications are included in the miscellaneous provisions contained in the policy itself are or attached as an endorsement. These amendments must be considered before making a final determination of coverage.
Once coverage has been analyzed and confirmed, the claims professional can move forward with investigation and resolution of the loss. If coverage cannot be confirmed, or if there is a question of coverage, the insured will need to be notified as soon as possible.
Conclusion
Language skills and knowledge of specific trade terms are two important skills required of claim professionals who face coverage issues. The art of knowing where to look in the policy and how to apply any external factors are necessary techniques to ensure an appropriate application of coverage. By using a systematic and logical approach, the claims professional will ensure that the policy contract has been considered in its entirety against the backdrop of the factors that can impact coverage application.
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