Insurance contracts are all about how the rights and expectations of the participants are met. In this instance, a manufacturer’s employee was seriously injured when a tank erupted. Through negotiations between the employer and the employee, a substantial settlement was reached.

A problem sprung up when the manufacturer’s insurer denied a request to be reimbursed for the settlement. The insurer’s position was that the manufacturer ignored a crucial policy provision when it arranged a settlement without the insurance company’s permission.

Click below for more information on how allegations of skirting around policy provisions impacted whether coverage was available.

It is always critical that all parties to any form of agreement have a solid understanding of their responsibilities. The transactional heart of an insurance policy is found in the insuring agreement. While the wording found at the beginning of most policies is not captivating, its impact is momentous.

An insurer commits to providing protection, subject to the policy's provisions, as long as the insured pays the required premium. Neither the insurer nor the insured has the authority to arbitrarily change or ignore any parts of the contract. Time and again, disputes spring from a failure to adhere to the agreement.

Click here for additional information on several important provisions found in an insurance policy that frequently affect loss coverage. It is from the Commercial Liability Section of P&C Insurance by Gordis found in Advantage Plus.

Consider how the situation spiraled out of control between Motiva and its insurer, leading to litigation. The loss occurred, a claim was filed, and the insurer responded about how it would proceed. That was all in order. However, the unraveling point came next. The manufacturer proceeded without the insurer’s involvement, reached and paid a settlement, and then expected reimbursement.

Motiva alleged that National’s decision to defend the claim under a reservation of rights threw all contract obligations out the window. While one might think that this was merely two parties with different opinions, that was not the case. This was not a matter of holding opposing interpretations, rather it involved a gross misunderstanding on the part of the policyholder. Use of a reservation of rights was a valid part of the process of addressing a possible loss.

Click here for more details about reservation of rights, particularly its intent. It is from Emarketing for Agents found in Advantage Plus.

With many disputes, the only and best solution is also an impossible…having access to a time machine. While we can’t jump back in time to correct past situations, insurance professionals can certainly make use of a process that often minimizes (or eliminates) future problems. And it’s foundational! Let us introduce you to the following term:

Underwriting - The process of selecting, classifying, evaluating, rating, and assuming risks.

Rigorous underwriting could have possibly played a role in whether the entangled lawsuit or the insurer-insured relationship could have been avoided. Risk selection is certainly a key factor in determining the possible exposures an insurer may face. In particular, paying meticulous attention to how a submission’s loss history could reveal that previous claims became problems. Digging deeper into potential issues may have led to a decision to decline a given risk.

Click here to see an excerpt from underwriting concerns for exposures that exist under a commercial liability (as well as an excess layer liability) policy. It is from the Commercial Liability section of PF&M found in Advantage Plus.