Insurance works best when a party that suffers a covered loss is fairly compensated for a loss that is eligible under a given insurance policy. Typically, such situations involve prompt notification to an insurer; quick, efficient investigation by claims personnel; and then, payment.

We know that, commonly, a paid claim may not be the end. Ideally, the party that is responsible for injury or damage to others should, financially, be held accountable. If another party is identified, insurers may use its policyholder's right to subrogate. Subrogation refers to an insurer standing in the place of the policyholder and seeking repayment from the party that caused the loss and its financial harm.

Click here for a litigated incident where an insurance company discovers information it believes to be relevant. Specifically, it found the information on the previous owner of the covered property justified its seeking restitution. The courts had their perspectives on whether the insurer was obligated to respond.

The insured/insurer relationship is contractual. This is reflected initially in the policy's insuring agreement. The agreement varies little among the myriad lines of business. The applicable policy may cover any of the following:

Regardless, the operative insuring agreement is, essentially, a brief description of how the policy's coverage obligation is triggered.

Click here to see a discussion of a policy insuring agreement/coverage. The excerpt is from ISO's EB 00 20-Equipment Breakdown Protection Coverage Form Analysis under PF&M found in Advantage Plus.

We frequently discuss the contract aspect of insurance. We do so because it is of foundational importance. Policyholders are expected to fulfill their obligations with regard to both when they apply for coverage as well as afterwards, when an insurer provides them with protection. Meeting contractual responsibilities is not only the right behavior, it also a legal requirement.

When an insured fails to comply with expected actions or with duties that are laid out in a policy, there can be significant consequences including possible loss of coverage. One principal element of insurance is that the person seeking coverage must have a bonafide financial stake in property that is lost, damaged, or destroyed. In the court case featured in this month's In Action, the insurer argued that their obligation to provide coverage was affected by the policyholder providing incorrect information about who owned the covered property prior to their acquisition. The court rightfully questioned the relevance and determined that it didn't affect the policy provisions.

Click here to see a discussion of insurance as a contract from Gordis on Insurance found in Advantage Plus.

Insurance professionals commonly understand that the occurrence of a loss is where the "rubber meets the road." In other words, insurance most matters when it's called upon to respond to a claim. It's important that a proper response often includes denying a claim. Though bitter to handle, policyholders can accept such decisions when they're justified. However, dissatisfaction results when there's a perception that an insurer is not acting fairly.

For example, again referring to our feature court case, the insurer resisted payment when it discovered that some information provided to it before the policy was issued was incorrect. However, it was decided, via a lawsuit, that the incorrect was immaterial. In the end, the loss involved property that was eligible for coverage and the policyholders were, at the time of loss, the legitimate owners of the property. This was an instance where an insurer permitted a technicality to affect its actions. Increasingly, courts show less tolerance for minor items that don't prejudice (significantly harm) an insurer's rights. Sometimes insurers act in a manner that is mistaken, but other times the behavior may be considered acting in bad faith. Either the fact or the perception of such is a common reason for lawsuits.

Click here to see a part one of a two-part discussion of insurance company claims settlement from Emarketing for Agencies found in Advantage Plus.