Insurance & Employee Benefits
Purchase an Insurance Policy that has You Covered –
Avoid an “Empty" Policy
By Henry L. Goldberg & W. Richard Kroeger
Not all policies of insurance are created equal. In fact, some policies of insurance offer almost no coverage. Be certain to purchase a policy that is worth more than the paper upon which it was written. If you search only for the lowest price, you may be unpleasantly surprised by what is not covered when you make a claim. This article will discuss what you should review in order to avoid purchasing an “empty" policy.
Every policy of insurance begins with what is known as “the grant of coverage.” This is found at the very beginning of the policy, and sets forth the general outlines of what is covered under the policy. It says that the insurer will pay “those sums that the insured becomes obligated to pay as damages because of ‘bodily injury’ or ‘property damage’” to which the policy applies. It also explains that the insurer has the right and duty to defend any covered suit.
Although this may initially sound like a very broad grant of coverage, in fact, the scope of the coverage can be significantly narrowed by “exclusions” that are located in the second section of the policy. A general idea of what is excluded is found in the names of those exclusions, such as: “Expected or Intended”, “Contractual Liability”, “Workers’ Compensation and Similar Laws”, “Employer’s Liability”, etc.
Sometimes exclusions can be found as endorsements that are attached at the back of the policy. You should read these in their entirety. A schedule (or list) of these endorsements should also be attached near the front of your insurance policy. The schedule of endorsements provides a convenient reference point where you can quickly see which endorsements actually amend the policy.
Make certain that you fully understand each and every exclusion and endorsement to your policy of insurance. This is critical. Your insurer will deny coverage for any claim or suit which falls within any one of the policy’s exclusions.
For example, the “Expected or Intended” injury exclusion has been interpreted by the courts to bar coverage whenever the insured knew, or reasonably should have known, that an injury was likely to occur. It is not necessary to anticipate exactly how the injury would occur, or the exact nature of that injury. Thus, for example, if your employee drives a business vehicle home from work and stops for a drink on the way, then is involved in an accident, your insurer will likely deny coverage under this exclusion by arguing that the employee knew, or reasonably should have known, that an injury was likely to occur if he drove after drinking.
Sometimes policies are completely unsuitable for your line of business. For example, we know of one subcontractor who performs various activities (including erecting safety fencing, drywall, etc.) on new construction projects. His insurer insisted upon inserting an exclusion in his policy which excluded coverage for “Any New Ground-
His broker recognized the potential for problems here and advised the insurer (before binding coverage) that this was a concern because the subcontractor often worked in some capacity on a project that could be considered “new ground up construction,” but would not put in the foundation or serve as a GC. The broker specifically asked whether the endorsement’s intent was to exclude the subcontractor’s activities, or those of the GC. The insurer replied that the intent was to strictly not cover a GC that would construct a new building from the ground up. The subcontractor purchased the policy.
Subsequently, the subcontractor erected a fence around a work site where a new building was being built from the ground up. A worker at the site (who was employed by a different subcontractor) later claimed to have been injured by a falling piece of the fence and filed suit. The subcontractor tendered the suit to his insurer. The insurer assumed the subcontractor’s defense under a Reservation of Rights.
That insurer now intends to disclaim coverage, arguing that the “Any New Ground-
While we believe that this is evidence of bad faith on the insurer’s part, we also believe that this is a perfect example of an insurance policy’s exclusions arguably "swallowing up" the policy’s promised coverage. Although the subcontractor and his broker did everything they could to avoid this situation, the insurer’s re-
In conclusion, we urge you to read your insurance policy carefully and make certain that you understand exactly what your policy does, and does not, cover. Discuss this with your broker; ask questions. Design your insurance coverage with someone who understands your business. Look at the coverage exclusions and make certain that you understand each of them. Don’t be the unfortunate individual who overpays, at the very lowest price, for an “empty" policy.
Henry L. Goldberg is the Managing Partner at Goldberg & Connolly. He may be reached at (516) 764-
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