It seems, on the surface, that words should matter, especially when they appear in an insurance application. Applications are designed to achieve several objectives including acceptability for coverage and details needed to develop an insurance premium sufficient to meet an insurance company’s profit objective. Generally, it’s a problem when there is poor or no alignment between application questions and an applicant’s answers.

Well, what’s next? A loss, of course. The particulars of the above court scenario involve a jewelry store owner asking his insurer to reimburse an employee’s armed robbery. The insurer has a problem with the claim. It turned out that the business they insured was a bit inaccurate with the information it provided to secure a policy. Do yourself a favor.

Click on this link to get more details on whether the policyholder’s faux pas affected coverage.

The insurer and the policyholder, while looking at the same set of loss circumstances, viewed them in a manner that was diametrically opposite. The insurer, after beginning its loss investigation, discovered that the jewelry store’s application did not contain accurate information in several areas. The insurance company’s position was that it relied on having complete information via the application and, since there were discrepancies, it did not have an obligation to cover the loss.

Now there are insurance policies that can treat applications like warranties. In such cases, applications are treated as part of a policy AND the applicant/policyholder is held fully accountable for the underwriting information in the application. This treatment is common in the Life & Health field; it’s rarer in P&C lines of business.

Click here to see a discussion of relevant policy conditions. It is from the Commercial Inland Marine Information section of PF&M found in Advantage Plus.

In our opinion, both the insured jewelry store and the insurance company had valid points. The insurer depended upon the operation details that appeared on its application. It is quite likely that, if it had more accurate information, it may have proposed different coverage limits, deductibles, endorsements or even declined the submission. The jeweler? It may have offered information at a level it thought was sufficient, without actively withholding information. Certainly, post-loss, it made sense for it to dispute rejection of a claim, especially when a court ended up deciding that the operation inaccuracies were not material.

Both parties may have been served best if they ended up on the same page with regard to the actual exposures that comprised the jeweler. An application usually, but not always, sheds sufficient light. There is a step that could be taken to vastly improve the likelihood that the exposure information is clear to everyone.

Click here to see an excerpt from a tool that is precise enough to assist in identifying coverage needs. It is from the Retail Class section of the Commercial Lines Survey found in Advantage Plus.

Unquestionably, it is valuable for both the applicant/policyholder and the insurer to have an equal and clear understanding of existing exposures. That extends to awareness of products/services available to address them! Now here’s the tricky part: being on the same page regarding the sources of loss is one important issue but agreeing on what steps to take is also critical.

One party may wish to secure every coverage option available to mitigate the aftermath of losses. The other party may, for its own reasons (including concerns over costs and approach towards risk-taking) wish to address exposures that are the most likely or to cover a wider range of exposures, but at lower limits. Attitudes regarding suggestions on what to cover can change after a loss, but it still is important that, at one point, both parties acknowledge what is offered and what is accepted.

Click here to see an excerpt of a relevant article on some handling coverage recommendations. It originally appeared in the February 2008 issue of Rough Notes Magazine. It is from the magazine’s archives found in Advantage Plus.