Extreme Denials (Excerpt)

Unless an insurance issue is litigated, it is not likely that producers will be introduced to, or hear of, the legal doctrine that whether or not coverage applies depends solely on a court to decide.

This does not mean that producers do not have to be concerned about whether an insurance policy or other coverage document covers a given exposure. One reason is that not all questions of coverage are litigated (even though it may seem that way).

More important, it is the anticipation that how a court decides an issue is heavily influenced by what the producer has come to learn through experience and knowledge passed down by a variety of educational means, including the experience of producers' peers.

Even if issues are litigated, producers and others can be helpful witnesses in explaining to the courts the genesis, rationale and how certain coverages are perceived to apply in custom and practice.

Unfortunately, the outcome of an insurance dispute does not always turn out as producers may expect based on what they were taught. In fact, what some claims people and their legal counsel think policy provisions can best be described as "off-the-wall" opinions, which show nothing more than an attempt not to want to pay claims.

Conclusion

One has to wonder how much this litigation in the American Western Home Insurance Company case cost the insurer to try a case where the odds were definitely against it. Another puzzling question is why the insurers in both of the above discussed cases denied coverage in the first place.

Was it to give legal counsel something to do, or was it because of inexperienced claims people and those who supervise them? If one had to guess, it was probably the latter.

The policy issued by the insurer in the last case, by the way, has largely been replaced by a commercial general liability policy modified with a designated premises endorsement. In either case, the way coverage is written will invite problems for accidents away from premises. The designated premises endorsement, therefore, should be avoided whenever possible.

The bottom line is that producers need to exercise care in dealing with these kinds of insurers unless there is no other alternative. Fortunately, producers cannot be faulted for this kind of insurer conduct because, in the event of litigation (in the absence of failing to obtain the appropriate coverage), whether coverage applies is not up to the producer or how the producer thought the coverage obtained should have applied.