I mentioned the late Doug Houser recently in Ice Damming Case Denied or Not Fully Paid? Eyewitness Accounts Tip the Scales in Ice Damming Insurance Dispute. The Bullivant Houser law firm quoted Doug about a case he lost, and his insurer client later re-wrote the insurance policy so it would not pay for a claim under similar circumstances:

What was your first big insurance coverage case, Doug?

Houser: In 1962, there was a big windstorm on Columbus Day with 110 mile-per-hour winds that did a lot of damage in the Portland area. A local company named Fred Meyer lost electricity and all their refrigerated products were lost. We had a coverage dispute over the scope of the off-premises electrical outage coverage. It’s the only time to this day that I got mentioned as the losing lawyer in the national insurance press for a case that I lost. At the time I felt like my career had been ruined. Actually, it was a big break for me and changed my career. As it turns out, clients thought of me as a “big case” lawyer. In any event, we later rewrote the policy, and it has withstood numerous tests since. 1

Insurance companies writing the terms of the insurance contract is an important point when it comes to insurance contract interpretation. Most courts will find that the insurance product is a “boilerplate” contract of adhesion.

In When Words Collide: Insurance Policies as Contracts of Adhesion, we analyzed this topic and referenced a book every insurance agent and public adjuster should own. Bill Wilson wrote:

Doctrine #6: Most insurance policies are contracts of adhesion, so insuring agreements are interpreted broadly, exclusions narrowly, and ambiguities in favor of insureds.

Most insurance policies, particularly “standardized” forms are considered by the courts to be contracts of adhesion. While some terms of the policy can be modified by endorsement, insurance policies are not negotiated like many other contracts where the parties go back and forth with modifications, duly acknowledged and initialed by both. Most insurance policies, short of manuscripted forms, are drafted entirely by insurers or by advisory organizations like ISO or AAIS and presented to insureds on a take-it-or-leave-it basis.

As a result, since the insured had no significant role in drafting the contract language, policy insuring agreements are usually interpreted broadly, exclusions and limitations narrowly, and ambiguities in favor of the insured. There are, of course, exceptions to this general rule, but they are few and far between. We will discuss some of them later.

In the case of interpreting ambiguities, the meaning of some policy terms can be ascertained by policy definitions (not that such definitions are not as often litigated as undefined terms). Otherwise, most policy language is interpreted by the courts based on its plain and ordinary meaning or, as one court put it, “plain, ordinary and popular sense.” Dictionaries are often the tool used by jurists to determine the plain and ordinary meaning of a word or phrase. 2

State insurance regulators, especially staff of legislators involved with insurance and everybody with the National Association of Insurance Commissioners, should carefully consider these implications in the modern era of insurance underwriting and policy drafting. Many insurance companies re-write their products today to gain a competitive advantage over others who do not deviate from industry-standard language.

I noted that insurance law professor Daniel Schwartz sounded an alarm about this issue over a decade ago in Are State Insurance Commissioners and Attorney Generals Failing to Protect Insurance Consumers:

An insurance transaction is unique. The actual product, the policy, is not provided to the policyholder at the point of sale. Indeed, the ability to study, analyze and then compare the terms with other policies before purchase is rare. Except for insurance agents, I bet $10 that nobody reading this blog can honestly say they read three or four policies to compare the available products before they purchased one. While we spend several minutes choosing which tomato is the best choice for dinner, we do not even read or compare much more important insurance products even though they cost significantly more and potentially determine whether we will financially recover from a disaster. It is impossible in most cases because most carriers do not provide a copy of the policy before purchase.

The purchase of insurance is a “pay now, terms later” transaction. Standard insurance policies with minimum requirements of protection were developed and mandated in the late 19th century, in part, to protect consumers and prevent problems resulting when insurance companies sold fire insurance but significantly minimized the coverage with boilerplate terms. Until recently, most insurance companies followed ISO standard forms. This is no longer the case.

As a result, for those involved in the day-to-day analysis of insurance losses, the lessons in the post, Bill Wilson Teaches How To Argue For Coverage at NAPIA—What is RTFP, are paramount.

For those that are in the insurance regulatory business, you need to stop kicking the can down the road and do something about all risk property insurance policies lacking a minimum standard, as called for in The Standard Fire Policy—Do We Need a Standard All Risk Insurance Policy:

Perhaps the insurance industry should stop making goofy ads and warn what their policies do not pay before the losses happen. Perhaps they should better explain why their products work the way they do and stop competing on hidden coverage gaps cleverly written into language most would not expect because all they hear is monetary savings on cheap insurance. Insurance companies are licensed and we can make these solicitations and practices illegal if our legislators care more for their electorate than money from the insurance lobbyists.

Consumer protection regarding property insurance coverage seems to be all about the price and availability. The terms of insurance coverage are equally important and should not be overlooked when analyzing today’s complex issues of insurance.

Thought For The Day 

“We act as if simple cause and effect is at work. We push to find the one simple reason things have gone wrong. We look for the one action, or the one person, that created this mess”
—Margaret J. Wheatley

1 https://www.bullivant.com/member-spotlight-doug-houser/
2 Bill Wilson, When Words Collide: Resolving Insurance Coverage and Claim Disputes, 75 (2018).