Reading and interpreting an insurance policy for the first time may not be a straightforward task. For new lawyers in the insurance coverage field, determining what the policy covers and does not cover in light of a claim can be made easier with these tips:
Review the Declarations: Usually the first page of the policy, the declarations page will show the “named insured”, the coverage limits for each coverage (in other words, the amount of coverage that has been purchased), the policy period, the premium, and what endorsements are included in the policy.
Read the whole policy: Almost all policies have the following sections: (1) definitions; (2) coverages (or insuring agreements); (3) exclusions ; (4) general terms and conditions; and (5) endorsements. It is important for policyholders and claim handlers alike to read the entire policy to ensure a comprehensive understanding of the scope and limits of coverage, the promises that the insurance company has made, and the exclusions that may bring coverage outside of the insuring agreements. Be extra careful with reviewing the endorsements as they often expand or reduce the scope of coverage.
Ensure you have a copy of the entire policy: You do not want to be surprised to find that there are additional forms or endorsements that were not part of the copy of the policy you used for a coverage analysis. The easiest way to ensure you have a copy of the entire policy is to ask the broker or directly to the insurer for a certified copy. Another way is to go through the list of endorsements on the declarations page and ensure you have a copy of all of them.
Focus on the definitions: Often, defined terms like “claim” or “loss” are included in the policy’s terms and conditions and/or in specific coverage forms within the policy. The policy definitions control the interpretation of the policy. A great deal of insurance coverage disputes revolve around defined and undefined policy terms. Whether you are deciding if the insuring agreement is triggered or an exclusion or coverage limitation applies, be mindful of defined and undefined terms. Unless ambiguous, courts tend to abide by the policy’s definitions and if a term is undefined, courts tend to rely on dictionaries to interpret undefined policy terms.
Review exclusions: Exclusions are contractual provisions that preclude coverage for certain types of risks, events, property and/or persons. Exclusions can be found in the policy’s general terms and conditions as well as in specific coverage forms and/or endorsements. Although your focus when analyzing coverage should start with determining whether the claim by the insured falls, or potentially falls, within the policy’s insuring agreement(s), the analysis goes on to determining whether any exclusions may bring the claim out of the scope of coverage. The application of a single exclusion may suffice to exclude the entire claim from coverage. Two or more exclusions, however, may apply concurrently to exclude different elements of a claim. Similarly, an exclusion may apply to some claims and/or insureds and not to other types of claims and/or insureds.
Evaluate the conditions: The conditions of an insurance policy explain what policyholders are required to do or refrain from doing before the insurance company needs to keep their promises. In other words, conditions are duties the insured must comply with in order to qualify for coverage in the event of loss or to avoid coverage forfeiture. Conditions also explain how and when losses are (or should be) paid. Insurance coverage attorneys should assess how the applicable jurisdiction interprets and applies these conditions. For example, some policy provisions are deemed against public policy or inconsistent with a statute, which renders them unenforceable. Others are strictly construed by courts.
Read each provision carefully: Careful review of all provisions is important because insurers sometimes limit coverage in insuring agreements, and expand or reinstate coverage in exclusions. For example, coverage may be limited in the way terms such as “Claim” or “Loss” are defined. Some exclusions give back coverage, too, by including exceptions or “carve-outs” that limit the scope of that exclusion. And, though insuring clauses typically explain what is covered, they can include exclusionary language within that clause instead of as a separate exclusion.
Double check endorsements: A common mistake for young lawyers is to forget the endorsements. Endorsements may amend definitions, conditions and in some cases may even delete entire insuring agreement clauses and coverage forms. A careful insurance coverage attorney should dedicate most of its time analyzing the interplay of endorsements with the general conditions and all other forms of the policy, including the declarations pages and insuring agreements.
Jessica Gopiao is an associate in the Insurance Recovery Group at Miami, Florida, office of Reed Smith LLP.
Andres Avila is of counsel at the New York office of Ropers Majeski PC. He represents insurers in coverage matters.
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