A boat suffered a loss and the insurer denied coverage. The denial was based on the policy’s language on the coverage territory. The loss occurred outside of the waters that were protected by the policy. There was a loan on the boat which, naturally, created an insurable interest. The bank that held the loan sued for coverage. It argued that the policy’s coverage permitted payment because of a lender’s endorsement attached to the policy.

This court case is a useful reminder that coverage issues are, often, unclear! The dispute was over two, quite distinct and opposite views held by an insurer and an additional insurable interest.

Please click here for more details, including the court’s eventual acceptance of the lender’s position.

This incident ended up in a reversal, upending the insurance company’s argument and for good reason. The insurer, essentially, dismissed the distinct coverage right of the lender. The incident also shows how, within a single policy, more than one set of conditions may exist. Those conditions may be accompanied by different applications of the policy.

The insurer was correct, but only up to a point. Viewed on its own, the loss did fall outside the defined coverage territory. Most policies are limited to a given area. Territory restrictions are put in place as a necessary control on how required premium matches intended coverage.

Click here to see the various conditions found in most commercial lines policies. The excerpt is from P&C Insurance by Gordis found in Advantage Plus.

The turning point in this dispute was an important one. It was due to the lender recognizing the importance of endorsements, the tools frequently used to change some aspect of a policy. In this case, an endorsement was added in order to recognize that another party had an insurable interest in the covered property. That interest was created by the loan provided to the boat owner during its purchase.

What was just as important as acknowledging the lender, the particular endorsement added wording that made its coverage broader than that granted to the policyholder. The latter’s protection was restricted by the defined policy. Due to the endorsement’s language, the territory restriction was muted. Specifically, the endorsement stated that the territory did not apply to the party holding the loan. A higher court agreed that the wording made coverage applicable to the bank.

Click here to review a section on endorsements. It is from the ISO Commercial Property Available Endorsements article under PF&M found in Advantage Plus.

The common assumption is that an insurance company is the expert on how a policy applies to a given occurrence. The assumption is so strong it has long evolved into a legal presumption regarding contracts. It is the basis of why coverage is granted to policyholders and other, non-drafting parties, when ambiguity is found in policy language. Essentially, the insurer loses when a part of a contract related to a given dispute can be interpreted in more than one way.

Interpretation of a coverage situation includes examining a policy in its entirety. An insurer’s initial victory was reversed when closer analysis determined that a modification to the policy created a different, proper result.

Consider this as you serve your clients. Your role can make a difference when you are able to act in a manner that clarifies coverage, for all involved parties. It’s common that one’s intent can blind a party. Insurance professionals can assist in making sure that all parties understand how a policy should respond. That’s a powerful responsibility.

Click here for an emarketing article that you might want to post on your website or include in a newsletter which your clients may find helpful. It discusses how the insuring arrangement among parties is a matter of trust.