This month’s featured case seems serendipitous. In our previous In Action, a dispute involved wording on an application that contained language that was treated as a warranty. This situation involves warranty language that is actually contained within a policy.

A boat owner suffered a loss, specifically a theft that occurred while attempting maintenance on the watercraft. The insurer objected to responding to the loss; its position was that the loss circumstances fell outside the conditions of the warranty. Both parties decided to seek resolution through the court system over the impact of two simple words, “in use.”

Please click on the link to get details on why the parties disagreed over the phrase and how it was interpreted.

A warranty may appear in a policy. When it does, both the insurer and the policyholder are subject to the language. While a warranty can create parameters that affect coverage for a claim or continuation of a policy term, the language can still be problematic.

In the featured case, the property owner argued that the policy wording on what constitutes use of the watercraft permitted coverage of its theft. Eventually a court sided with the policyholder. In its opinion, the warranty encompassed the meaning of “in use” to include activities tied directly with boat ownership. In other words, upholding the insurer’s argument would be an unreasonable, narrow reading of what “in use” meant.

Click here to see a discussion of contractual elements involved with insurance policies including warranties. It is from Gordis on Insurance found in Advantage Plus.

Litigation should be a last resort. Our country has nearly made it de riguer. That is often an expensive mistake. There is no rule or automatic point where one party must seek financial relief in the courts. The opposite often happens – too little time and effort is spent on clearly communicating positions. Even if in error, it can be quite effective in operating under the assumption that the other party is as invested in doing the right thing. There’s an advantage in doing so. It opens discussions up, making both sides more receptive of listening to and properly evaluating each other’s point of view.

Litigation frequently arises out of at least one party being locked in with a decision over a loss. Once that point is hit, court activity is usually unavoidable. The effort to discuss each other’s position honestly and openly may result in resolution without the time and expense of legal action.

Click here to see an article that discusses the possibility of deescalating a coverage dispute. It is from Emarketing for Agencies found in Advantage Plus.

Sure, most coverage disputes remain between policyholders and insurers. However, insurance professionals know that they have much at stake when differences of opinion develop into court battles. Agents have their own reasons to actively mitigate problems.

Frankly, when policyholders claim that they didn’t know about or didn’t understand a policy condition, provision, language, or exclusion/limitation, they also usually place some responsibility on their agent. Therefore, it’s important for agents to take every opportunity to clearly communicate about exposures. That means being straightforward on what a policy can deliver. It also requires taking steps to be aware of new exposures a client may acquire. It’s prudent to suggest how additional risks might be addressed, especially regarding the availability of other policies or endorsements.

There are several benefits to being proactive. Agents may demonstrate increased value to their customers by actively monitoring their coverage needs. They will increase their skills in managing and mitigating risks. They end up creating additional income and avoiding/minimizing litigation can improve their profitability and their value to the insurers they represent.

Click here to see an excerpt of a relevant article regarding insurance contract issues from an agent’s perspective. It originally appeared in the October 2018 issue of Rough Notes Magazine. It is from the magazine’s archives found in Advantage Plus.