Assumption versus Adhesion and…Adhesion Wins Again!
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A Union Pacific train struck the Johnson family car as it crossed the tracks, killing the wife and a child, and seriously injuring Mr. Johnson, the husband and father. He sued Union Pacific and received a $12,500,000 settlement. Since Tri-State Traffic Control, Inc. was working on the site where the accident occurred, Union Pacific demanded contribution as an additional insured under the Tri-State policy. Ohio Casualty, Tri-State’s insurance carrier, said no!
The Tri-State policy had a broad additional insured endorsement that provided additional insured status to any party with whom Tri-State had a written contract that required additional insured status. Since the Union Pacific contract with Tri-State had such a requirement, it expected Ohio Casualty to respond. Ohio Casualty denied coverage because the contract between Tri-State and Union Pacific had expired and Ohio Casualty assumed that Union Pacific's additional insured status had expired as well.
The court ruled against Ohio Casualty because insurance policies are contracts of adhesion. If Ohio Casualty had meant for the additional insured status to end when the contract expired, it should have said so. Ohio Casualty's lack of clarity cost it $3,000,000 from their primary general liability and umbrella policies and considerable expenses for legal defense.
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Are you making assumptions when you read the policy or are you reading it as a contract of adhesion?
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Reading insurance policies is difficult and some of the language may seem less than straightforward. Many times wording that seems unnecessary is included to facilitate more complete understanding and to eliminate or reduce the chance of it being misinterpreted.
PF&M is designed to assist you by clarifying policy language and by helping you understand it better. The examples used are intended to make the forms a little friendlier. In addition, when certain coverages require additional explanation, PF&M provides that as well.
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