when words collide - iiabsc · 2019-08-01 · international risk management institute (irmi), and...

When Words CollideResolving Insurance Coverage

and Claims Disputes

Presented by

Bill Wilson, CPCU, ARM, AIM, AAMFounder & CEO

InsuranceCommentary.comwww.InsuranceCommentary.com

Copyright 2018-2019 by Bill Wilson. All rights reserved.Includes material copyright 1993-2018 by the Insurors of Tennessee, Independent Insurance Agents &

Brokers of America, and Insurance Services Office, Inc., used with permission and/or under license.

Bill Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of Insurance Commentary.com and the author ofthree books, the most recent being “When Words Collide: Resolving Insurance Coverage and Claims Disputes.”He retired from the Independent Insurance Agents & Brokers of America in December 2016 where he servedas Assoc. VP of Education and Research for over 17 years and was the founder and director of the Big “I”Virtual University. He is the former Director of Education & Technical Affairs for the Insurors of Tennesseeand, prior to that time, he was employed by Insurance Services Office, Inc. He is a graduate of the IllinoisInstitute of Technology with a B.S. degree in Fire Protection & Safety Engineering.

Bill was a licensed insurance and surplus lines agent, and his professional affiliations have included past president of theMiddle Tennessee Chapter of CPCU, member of the board of directors of the national CPCU society, PMLG of the HonorableOrder of Blue Goose, International, member of the Independent Insurance Agents & Brokers of America (IIABA) NationalEducation Committee, member of the Certified Insurance Service Representative (CISR) National Advisory Committee, memberof the National Underwriter FC&S editorial board, member of the Society of Insurance Trainers and Educators (SITE) and itsSITE Journal editorial committee, member of the National Writers Association, chairman of the Tennessee InsuranceCommissioner’s Education Advisory Committee, member of the Middle Tennessee State University Insurance LiaisonCommittee, and member of the Nashville State Technical Institute’s Business Management Advisory Committee. He iscurrently a member of the American Association of Insurance Management Consultants (AAIMCo).

Bill has served as a trainer and speaker for various organizations, including the Independent Insurance Agents & Brokers ofAmerica and 46 of its state affiliates, the CPCU Society national convention and chapter programs, the National Association ofInsurance Women (NAIW), the Southern Agents Conference (SAC), the Risk & Insurance Managers Society (RIMS), theInternational Risk Management Institute (IRMI), and the Society of Risk Management Consultants (SRMC).

He has conducted hundreds of technical seminars, workshops and convention presentations—from Hawaii to Maine andAlaska to Florida—as well as programs on time management, presentation and public speaking skills, seminar development,and many others. He has been the top-rated presenter at several CPCU National Conventions and his programs are alwayshighly rated by attendees. He has presented seminars or webinars to as many as 5,000 attendees in a single session.

He was the recipient of the IIABA L.P. McCord National Education Award for having the #1 ranked state insurance educationprogram in America and has won six other national education awards, including the George M. Gottheimer Memorial Awardwhich is presented periodically to a CPCU Society member who has made an outstanding contribution to the field of insuranceeducation, risk management or insurance consulting and, most recently, the Jeff Yates Lifetime Achievement Award which isthe IIABA’s highest honor for nonagents.

Bill has researched, developed, written, and published dozens of technical articles, manuals and CDs/audio tapes, and hasauthored articles in business and industry trade periodicals such as Presentations magazine, American Agent & Brokermagazine, Independent Agent magazine, Tennessee Insuror magazine, Tennessee Business magazine, the CPCU Journal, CPCUInterest Group newsletters, and the SITE Journal.

He has been quoted as an expert in a number of mainstream publications, including Readers Digest, Kiplinger's, and Moneymagazines and the Wall Street Journal, and he has been cited as an expert resource/interviewee for local television and radiomedia. He has also served as an expert witness in litigation.

According to Nashville NBC television affiliate WSMV, “Bill Wilson is an expert when it comes to insurance.” Dr. William T.Hold, president of the Society of Certified Insurance Counselors in Austin, Texas has said that, “Bill Wilson is recognized by hispeers as one of the premier insurance educators in America.” Bob Rusbuldt, CEO of the Independent Insurance Agents &Brokers of America says, “Bill Wilson is the nation’s foremost leading expert on form, coverage, and technical issues.”

Bill now blogs on insurance industry issues at www.InsuranceCommentary.com and delivers keynote presentations inconjunction with his consulting practice. He is also working on several new book projects in addition to playing lead guitar withthe band Slingshot. Email Bill at [email protected] and check out his published books on Amazon athttps://www.amazon.com/-/e/B075GT2V5N.

Bill Wilson, CPCU, ARM, AIM, AAMFounder & CEO, [email protected] or [email protected]•men•tar•y … an expression of opinions or offering of explanations

Connect with me:

Web site, blog, bio, speaking, etc.:www.InsuranceCommentary.com

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New insurance audience keynote addresses now available:

“When Words Collide: Resolving Insurance Coverage and Claims Disputes”

“The Reports of My Death Have Been Greatly Exaggerated: Commoditization, Disruption and theImminent Death of the Insurance Agent”

“The 10 Greatest Things Anyone Ever Said…and Why”

Now Available:

Print Edition: www.WhenWordsCollideBook.com or https://www.amazon.com/-/e/B075GT2V5N

Discounted bulk orders can be made through the www.WhenWordsCollideBook.com and the book can be“branded” in volume for organizations.

Kindle Edition: https://www.amazon.com/-/e/B075GT2V5N

“Bill Wilson takes his years of experience in the trenches and provides theinsurance community with realistic and street-wise words of wisdom in thisexcellent claims handbook.” – Dan Kohane, J.D.

“A Magnus Opus, probably the most important and usable insurance book I haveread.”– Stuart Powell, CPCU, CIC, CLU, ChFC, ARM, AMIM, AAI, Are, CRIS

“Bill Wilson is a paramount educator of insurance. His latest book is an excellentresource all insurance claims experts and professionals should have in their library.I thought so much of it, I have ordered the book for each Merlin Law Groupattorney.” – Chip Merlin, J.D.

“I think everyone who works in P&C insurance should read this book….Reading thisbook was like sitting in on a hundred claims committees without having to spend athousand hours in research and meetings.” – Amber Wuollet, Explore Insurance

8/1/2019

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When Words CollideResolving Insurance Coverage and Claim Disputes

Bill Wilson, CPCU, ARM, AIM, AAMInsuranceCommentary.com

# I R M I 2 0 1 8IRMI Construction Risk Conference

Once upon a time…

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Where it all begins…

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Why Forms and Facts matter• Examples: Business income, auto equipment, property in storage

• Illustration: Riding lawn mowers• HO 00 03 04 91

“Used to service an ‘insured’s’ residence”

• HO 00 03 10 00“Used solely to service an ‘insured’s’ residence”

• HO 00 03 05 11“Used solely to service a residence”


Why Forms and Facts matterScenario: You and a friend are going on vacation and you rent a car. You have auto insurance, she doesn’t. If you let her drive the car, does your ISO PAP cover her?


What you will learn today• Why claims are denied

• Two ways to deal with claims disputes• Step -1: Avoidance/Prevention• Steps 0-4: Resolution/Advocacy

• Legal and contractual principles

• A 4-step process for claims resolution (OK, 5 steps)

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Why are claims denied?• Cranial inversion

(medically, cranitis rectal inversio) • Illegal and/or unethical reasons• They’re not covered• There is a legitimate difference of

opinion about coverage

“A word is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in color and content according to the circumstances and time in which it is used.” – Oliver Wendell Holmes, Jr.


Legitimate differences of opinion…For example…• Earth movement is not covered, but what about a bouncing boulder?• Flood/surface water is not covered, but what about surface water on a

roof or a high-rise balcony?• Pollution is not covered, but what about a slip and fall in oil (or worse)?• CGL policies don’t cover autos, but what about driving a van on Sunday?


Legitimate differences of opinion…

“You keep using that word. I do not thinkit means what you think it means.”

– Inigo Montoya in The Princess Bride

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Legitimate differences of opinion…Example:







Two ways to deal with claim disputes

• Avoidance / Prevention• Resolution / Advocacy

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The best ways to avoid claim disputes…1. Historical perspective2. Foundational premises

• The purpose of insurance is to litigate insure• Never forget the mission of the insurance and risk management industry…

3. Policy form drafting4. Education/training5. Exposure analysis6. Risk management/insurance process7. Advocacy


The purpose of insurance is to insure“[There is a] requirement to meet the duty of good faith to the insured. The most positive way to do that is to look for coverage in our policies, and not to look for ways to deny coverage.”

1983 Travelers Insurance Company claims manual“Analysis of Liability Coverage” section


Never forget the mission of our industry…

To assist people and organizationsin minimizing their exposure to

serious or catastrophic financial loss

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What’s so funny?


Exposure analysis and the insuring processThree sources of coverage gaps that lead to disputes

1. Failure to identify exposures2. Failure to insure known exposures3. Failure to QC policy deliverables






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The best way to resolve claim disputes…


Advocacy…• Trust

• Trusted relationship• Credibility

• Choice• Carriers• Coverage and pricing options• Customization of products

• Advocacy






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Legal and Contractual Principles• Detrimental reliance• Reformation and rescission• Breach of contract• Duty of utmost good faith• Substantial performance• Statutory supersession• Regulatory directive• Agency accommodation

• Policy language intent• Parol evidence and extrinsic evidence• Reasonable expectations• Ambiguities• Entirety of contract• Unconscionable advantage• Illusory coverage• Public policy• Waiver and estoppel

80+ court cases160+ real-life claims scenarios


Principles…Intent• Insured vs. insurer• Property Not Covered

Covered Property does not include…Vehicles or self-propelled machines…that:(1) Are licensed for use on public roads; or(2) Are operated principally away from the described premises.

“No one knows what evil lurks in the hearts of men…but it’s all insured.” – California Chief Justice Malcolm Lucas


Principles…Parol and extrinsic evidence• Parol evidence rule• Extrinsic evidence

o Actions, words, or conduct of the contracting or litigating parties;

o Insurer or agent internal documents or communications;

o Insurer or agent public documents or communications;o The drafting history of policy forms;

and/oro Authoritative interpretive sources

“Before a manual can be looked to in determining the rights and liabilities of the parties, it must first have been referred to in the body of policies by plain and clear language and properly made a part thereof.” – Virginia Surety Co. v. Knoxville Transit Lines, 1955

SERFF = System for Electronic Rate and Form Filing

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Principles…Reasonable expectations• What the courts say

“The objectively reasonable expectations of insureds will usually be honored by the courts even if painstaking analysis of the policy forms would have revealed that such expectations were unwarranted.” – Robert Keeton in Insurance Law Rights at Variance with Policy Provisions, 1970

• How agents can create expectationso Marketing and advertisingo Cool Hand Luke Syndromeo The water closet story

• The Case of the Willowy Poolside Blonde


Principles…Ambiguities• Contra proferentem (“against the offerer”)

• “Weasel” words and tergiversation

• Semantic (or contextual) ambiguitiesInvolve the “choice of words”o Noscitur a sociis

“It is known from its associates”o Ejusdem generis

“Of the same kind, class, or nature”

• Syntactic ambiguitiesInvolve the “arrangement of words”o The Adventures of Semi-Colon Mano Those 7 Deadly Little Words


Principles…Entirety of contract• What the experts say• What the courts say• What the statutes say• What the insurance contracts say

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Principles…Unconscionable advantage“In situations where a layman might give the controlling language of the policy a more restrictive interpretation than the insurer knows the courts have given it…the company cannot ignore its obligation. It cannot hide behind the insured’s ignorance of the law; it cannot conceal its liability…it has the duty to speak and disclose, and to act in accordance with its contractual undertaking.” – Bowler v. Fidelity & Cas. Co., 1969

“An insurer bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy irrespective of the source of the information.” – Smith v. Travelers Indem. Co., 1973


Principles…Illusory coverage


Principles…Public policy• Incessant price-focused industry advertising

• Growth of the E&S marketplace

• Decline in the regulatory vetting of policy forms

• Minimum coverage standards?

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Principles…Waiver and estoppel• Waiver

• Estoppel

• Goats and ghosts

“Regardless of which language is selected by the insurer, the insured has a valid right to expect coverage as promised by the insurer’s agent.”

– Bill Brown Construction Co. v. Glen Falls Ins. Co., 1991


Principles…Detrimental reliance• Certificates of insurance

• Agent and adjuster statements

“Where the agent of the insurance company was told by complainants that they wanted ‘full coverage’ and if the agent assured complainants that they were getting full liability coverage, complainants would be entitled to recover on the policy notwithstanding the exclusions therein.”

– Henry v. Southern Fire & Casualty Co., 1958


Principles…Reformation and rescission• Mutual mistakes

• Unilateral mistakes by the insurer (e.g., Ebasco Constructors,Inc. v. Aetna Ins. Co., 1999)

• 1313 Mockingbird Lane:

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Principles…Breach of contract• Insurers

• Homeowners cancellation example• Auto cancellation example

• Insureds• Subrogation• Application


Principles…Duty of utmost good faith• Case law on uberrimae fidei (“of utmost good faith”)

• Burden of proof in bad faith claims

• Standard of proof

“The duty of the insurer to act in good faith when dealing with its insured is implied by law as a covenant of the contract. The duty of good faith and fair dealing applies to both parties to the insurance contract….”

– Abdelsamed v. N.Y. Life Ins. Co., 1992


Principles…Substantial performance• Proof of loss example

• Suit against insurer example

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Principles…Statutory supersession• A policy cannot be more restrictive than a statute.

• However, a policy can be broader than a statute.

• The insurance contract may not be able to rely on a state law unless such statutory provisions are incorporated into the policy.

• The importance of knowing state laws….


Principles…Regulatory directive• Industry-wide bulletins or directives

• Individual dispute intervention

• The DOI’s “authority to regulate”• Newton P. Black• Richard T. Webber


Principles…Agency accommodationsThe danger of agency accommodations…• Precedent setting (e.g., Aetna Cas. & Sur. Co. v. Haas, 1968)• Discriminatory?• Solution…

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Step 0: Heading off denials after the claim• Claim declination letters• Reservation of rights letters• Claim settlement releases• Unfair claims settlement practices


Declinations SHOULD…• Be in writing;

• Cite the specific policy language (and only that language) that is reasonably applicable to the present denial; and

• Explain why and how that policy language works to exclude coverage in the subject claim.

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Declinations should NOT…• Generalize or paraphrase policy language;

• Include policy language excerpts that misrepresentthe intent of the language; or

• Essentially consist of copying and pasting most ofthe policy exclusions, especially those thatrealistically have nothing to do with the claim.


Example 1: Selective editing• Cyber policy

• Declination letter policy language citation:“…related to the use of a computer inside the insured’s premises or the

premises of the bank.”

• Actual policy language:“…related to the use of any computer to fraudulently cause a

transfer of that property from inside your premises or from a banking institution or similar safe depository, to a person (otherthan a ‘messenger’) outside those premises or to a place outsidethose premises.”


Example 2: Selective omission• Homeowners policy

• Declination letter policy language citation:Arising out of a premises:(2) Rented to an “insured”;

• Actual policy language:Arising out of a premises:(2) Rented to an “insured”;that is not an “insured location”;

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Example 3: Inapplicable policy language• Homeowners policy• Lions and tigers and bears, oh my


Claim settlement releases• Releases and restrictive check endorsements• Does the insurance contract require a release to receive benefits?• The “preexisting duty rule”• Statutory and case law governance

“No check or draft issued in settlement of an insurance claim shallcontain a provision which makes negotiation of the instrument anacceptance of the amount payable thereon as full and finalsettlement of the underlying insurance claim, except those thatare for full policy limits.”

• An egregious example….


Unfair claim settlement practices• NAIC model law• At least 44 states have adopted this law• As many as 6 states (AL, IA, MS, NV, OK, WA) have their

own laws• Some adopting states have

variations that are broaderor more stringent than themodel law

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Unfair claim settlement practices• Failure to thoroughly investigate a claim• Exploiting the financial vulnerability of the policyholder to

get a favorable settlement• Unreasonable claim demands amounting to harassment• Coercive claims practices bordering on extortion• Low-ball settlement offers• Knowingly mispresenting relevant facts or policy provisions• Failing to promptly provide reasonable and accurate

explanations for the bases for claim denials


Unfair claim settlement practices variation…California Code of Regulations, Title 10, Chapter 5, Subchapter 7.5:“Where an insurer denies or rejects a…claim, in whole or in part, it shall do so in writing and shall provide to the claimant a statement listing all bases for such rejection or denial which is then within the insurer’s knowledge…the written denial shall include reference thereto and provide an explanation of the application of the statute, applicable law or provision, condition or exclusion to the claim.”


Judicial directivesSouth Carolina Supreme Court:

“It is axiomatic that an insured must be provided sufficient information to understand the reasons the insurer believes the policy may not provide coverage…generic denials of coverage coupled with furnishing the insured with a copy of all or most of the policy provisions (through a cut-and-paste method) is not sufficient.”

– Harleysville Group Insurance v. Heritage Communities,803 S.E.2d 288 (S.C. Sup. Ct. 2017)

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The 4-step process…


Step 1: Read the policy (again)• Does the insuring agreement apply?

• Is the person an insured?

• Do any exclusionary provisions apply?


Step 2: Research your interpretation• Does the policy provision seem ambiguous?

• What is the apparent intent of the language?

• What are the insured’s reasonable expectations of coverage?

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Step 3: Document your interpretation• Is there any authoritative support for your interpretation?

• Are there any precedent-setting court cases that may govern?

• Are there any superseding statutes?

“An insurer bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy irrespective of the source of the information.”

– Smith v. Travelers Indem. Co., 1973


Step 4: Plead your case

“If you can’t argue the form, argue logic; if you can’t argue logic, argue the form.”

– Bob SmithFlorida Association ofInsurance Agents(retired)


Step 4: Plead your case (cont’d)Dalton’s 3 Rules:1. Expect the

unexpected2. Take it outside3. Be nice

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Step 4: Plead your case (cont’d)• The scales of justice

• Appeal to your insurer

• Appeal to your agents association

• Appraisal, arbitration, mediation

• Appeal to your regulators (e.g., Richard T. Webber)

• Last resorts (e.g., Dickie Scruggs)


Putting theory to practice…


The Case of Logic AND Language2011 ISO HO-4 Excerpts:

• We cover personal property owned or used by an "insured" while it is anywhere in the world.

• Property Not Covered. We do not cover: Swimming pools?

• Additional Coverage - Collapse. We insure for direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following: [perils listed here]if the collapse occurs during the course of the construction, remodeling or renovation.Loss to an awning, fence, patio, pavement, swimming pool, underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall, bulkhead, pier, wharf or dock is not included under items b., c., d., e., and f. unless the loss is a direct result of the collapse of a building.

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The Case of the “Holey” Insurance• “Insured” as used in this [2005 ISO PAP] Part means:

1. You or any “family member” for the ownership, maintenance or use of any auto….”2. Any person using “your covered auto”3. For “your covered auto”, any person or organization but only with respect to legal responsibility for acts or

omissions of a person form whom coverage is afforded under this Part4. For any auto or “trailer”, other than “your covered auto”, any other person or organization but only with

respect to legal responsibility for acts or omissions of you or any “family member” for whom coverage is afforded under this Part….

• CG 04 19 – Louisiana Hired and Non-Owned Auto Liability/Uninsured Motorists Insurance (Bodily Injury)

• 2013 ISO CGL Exclusion Excerpt:“Bodily injury” or “property damage” arising out of the ownership, maintenance, use, or entrustment to others of any…“auto”…owned or operated by or rented or loaned to any insured.

• CG 20 22 – Additional Insured - Church Member, Officers and Volunteer Workers


The Case of Something or Somebody Stinks

1991 ISO HO-3 Exclusion Excerpts:

• Discharge, dispersal, seepage, migration, release or escape of pollutantsunless the discharge, dispersal, seepage, migration, release or escape is itself caused by a Peril Insured Against under Coverage C of this policy.

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed;

• Birds, vermin, rodents, or insects; or(cont’d)


The Case of Something or Somebody Stinks

2011 HO-3:(g) Birds, rodents or insects; (h) Nesting or infestation, or discharge or release of waste products or

secretions, by any animals;

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Two Ways to Deal with Claim Disputes

Prevention (Step -1)• Historical perspective

• Foundational premises• The purpose of insurance is to litigate insure• Never forget the mission of the insurance and

risk management industry…

• Policy form drafting

• Education/training

• Exposure analysis“What you don’t know CAN hurt you!”

• Risk management/insurance process• Insure or risk manage known exposures• QC policy deliverables

“Be careful what you DON’T ask for!”

• Pre-claim advocacy

Resolution• Step 0: QC the denial

• Step 1: Read The…Policy (again)

• Step 2: Research and interpret the policy in context

• Step 3: Document the interpretation

• Step 4: Plead your case

Tools

• Policy interpretation basics

• Policy interpretation doctrines

• Policy interpretation principles

Resources


Two Ways to Deal with Claim Disputes

Resolution• Step 0: QC the denial

• Step 1: Read The…Policy (again)

• Step 2: Research and interpret the policy in context

• Step 3: Document the interpretation

• Step 4: Plead your case

Tools

• Policy interpretation basics

• Policy interpretation doctrines

• Policy interpretation principles

Resources

• IRMI, case law, experts, etc.

Interpretation principles• Policy language intent • Reformation/rescission

• Reasonable expectations • Substantial performance

• Entirety of contract • Ambiguities

• Extrinsic evidence • Public policy

• Unconscionable advantage • Regulatory directive

• Illusory coverage • Statutory supersession

• Detrimental reliance • Agency accommodations

• Waiver and estoppel • Duty of utmost good faith

• Breach of contract

80+ court cases160+ real-life claims scenarios


Advocacy

“Never, never, in nothing great or small, large or petty, never give in except to convictions of honour and good sense. Never yield to force; never yield to the apparently overwhelming might of the enemy.”

Winston Churchill, October 29, 1941

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The Insurance Professional Oath*As an insurance professional,

I shall strive at all times to live by the highest standards of professional conduct;

I shall strive to ascertain and understand the needs of others and place their interests above my own;

I shall strive to maintain and uphold a standard of honor and integrity that will reflect credit on my profession, my employer and myself.

* Based on The CPCU Oath


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The Insurance Golden Rule

“Never, ever forget in everything that you doprofessionally that the purpose of insurance is toinsure and that the mission of this industry andevery professional in it is to assist individuals,families and organizations in minimizing theirexposure to serious or catastrophic financial loss.”

This begins with the insurance contract and ends with YOU.


When Words CollideResolving Insurance Coverage and Claims Disputes

Now available atwww.WhenWordsCollideBook.com

• Based on 30+ years of practical experience

• Proven 90%+ dispute resolution success

• Over 350 pages and 80 case law citations

• Over 160 real-life coverage and claims examples

• Over two dozen expert testimonials,including….

“Bill Wilson takes his years of experience in the trenches and provides the insurance community with realistic and street-wise words of wisdom in this excellent claims handbook. For both the novice and the experienced professional, Bill’s approach gives any reader a heads-up and pathway to approaching even the most complex claims situations.” – Dan Kohane, J.D.

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Contact me…

Bill Wilson, CPCU, [email protected]

“I know a thing or two because I’ve seen a thing or two.”

when words collide - iiabsc · 2019-08-01 · international risk management institute (irmi), and...

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