Insurance Companies Know Their Customers Do Not Read Insurance Policies

Chip Merlin | Property Insurance Coverage Law Blog | March 11, 2019

Insurance companies and insurance agents know that their customers do not read their insurance policies. Proof is found by the Squaremouth Insurance Company offering a prize which could only be found if a policyholder read the insurance policy and won a secret contest. Here is the story:

A self-proclaimed ‘nerd’ from Georgia read the often-ignored fine print on an insurance contract — and it ended up winning her $10,000. Donelan Andrews recently bought travel insurance from a Florida-based company, Squaremouth. Andrews and six of her closest friends are traveling to London together in September, and the high school teacher wanted to secure their trip, she told CBS News.

Andrews says as nerdy as it sounds, she always reads the fine print on contracts, policies and agreements. This time, her diligence paid off. Hidden deep within the text of her Squaremouth insurance policy was a contest to win $10,000. The company buried instructions for claiming the grand prize in the fine print of every Tin Leg Travel Insurance contract.

‘If you’ve read this far, then you are one of the very few Tin Leg customers to review all of their policy documentation,’ the fine print read. It included an email address and said the first person who replied would win the prize.

. . . .

Squaremouth explained the secretive contest on their website after Andrews won. ‘We understand most customers don’t actually read contracts or documentation when buying something, but we know the importance of doing so,’ the company wrote. ‘We created the top-secret Pays to Read campaign in an effort to highlight the importance of reading policy documentation from start to finish.’

‘Over the past 16 years, we’ve learned that many travelers buy travel insurance and just assume they’re covered if anything goes wrong, without actually reading the details of their policy,’ Squaremouth wrote. ‘However, this often leads to claims for losses that are not covered. This lack of understanding is one of the biggest reasons travel insurance claims are denied.’

In, When Words Collide: Resolving Insurance Coverage and Claims Disputes, Bill Wilson agrees that virtually nobody reads their insurance policy:

Who reads rental agreements at the counter when renting a car? Pretty much no one. Who reads 78-page software or phone app licensing agreements? Almost certainly no one. Did YOU read the Copyright and Disclaimer page of this book? (That’s a rhetorical question.) Who reads insurance policies? Virtually no insureds and far too few insurance professionals like agents, underwriters, and adjusters. Why? In the case of insureds, one reason might be that the actual policy forms are not provided for days or weeks after coverage is bound. A presumption of an insured might be that, if the insurer doesn’t see a need for the insured to read the policy before entering into the insurance contract and perhaps weeks afterwards, is there really any need to read it when received? Would whether or not an insured reads the policy make any difference in how a claim is resolved?

So, how do customers of the insurance product know what they are insured for? I would suggest that they learn from their insurance agents and from advertising. If Wilson is correct, it is certainly a very precarious proposition because then even the agents who customers rely on are not reading the policies and the often-comedic advertising of insurers.

Policyholders do not read their policies. If they did, few would fully understand what they are covered for. The reality is that most people “hope” they have coverage. After a loss happens, that “hope” is a lot more nervous than at the point of purchase.

Insurance agents are extraordinarily important. Policyholders should select truly professional agents, as I discussed in, Choose Insurance Agents Wisely to Avoid Insurance Coverage Gaps:

Educated, hardworking and professional insurance agents play an important role in the insurance industry. They recognize their obligations to customers extend far beyond being mere order takers and providing the cheapest insurance premium. Instead, they are the agents who procure insurance policies which provide the “peace of mind” the insurance industry promises and advertises to those who purchase its products.

Imitation is the greatest form of flattery, as I have been told, and as such, we will imitate what Squaremouth has done. If you are reading this – you have won free admission for you and up to four others to our 4th Annual Midwest Construction Defect & Dispute Conference in Chicago on May 20th. Travel, food and other expenses are not included. Email to take advantage of this offer and claim your reward!

The Trick to Getting Blockchain to Work for Insurance

Jason Contant | Canadian Underwriter | July 30, 2018

The trick to getting blockchain to work in the insurance space is getting all the players in the market to align and agree on common standards and a way to govern the blockchain, Aon Benfield’s chief information officer said Friday.

“There’s a massive efficiency play there if you can get alignment across the different parties in the chain,” Bob Olson said in an interview. “That’s always the big trick: can you get all the players in the chain to align and agree on common standards [and] a common way to govern the blockchain? That’s kind of what the industry is going through now – to try and figure out which consortium, which group is going to get the right momentum behind them [and then] get some standards built.”

Kelly Superczynski, head of Aon Benfield Analytics for the Europe, Middle East and Africa region, agreed that the benefits of blockchain include efficiency and trying to get some costs out of the equation. As it currently stands, there is a “long chain of people involved” in the insurance process, each with their own system, whether it’s a carrier, managing general agent, broker, reinsurance broker or reinsurer, Olson added. That’s a very labour-intensive kind of process that involves re-keying and revalidation of information, trying to sync information and get claims paid and reconciled.

“But having a shared distributed ledger allows you to effectively, in the ideal world, actually enter it once, have other people supplement and add on throughout the data chain, but not having to do all this re-keying and reconciliation through the whole process,” Olson said.

At this point, though, “nobody really has it working in any kind of scale at this point; it’s still a lot of R&D,” Olson said. (Case in point is Canada’s largest insurer, Intact Insurance, which told Canadian Underwriter recently that it was exploring blockchain’s potential.)

Superczynski said that given expense ratio challenges across the industry, “there’s a recognition across the board that we need to reduce expenses, so using something like blockchain or other technology like AI are high up on the list of carriers’ initiatives because they are trying to figure out how we can get some costs out of the chain.”

Blockchain has a number of potential applications, including travel and marine insurance, she said. Marine is a very paper-heavy industry and there are a lot of endorsements and amendments as goods are physically passed through the chain. “Blockchain people see that as having a significant opportunity in the marine space because of the amount of paper that goes into just moving goods across the world,” Superczynski said.

For Marc Boone, senior director of IT with Aon, distributed ledger technology is the future. “Whether blockchain is the solution for how to transact more seamlessly across different parties or whether it’s some evolution of blockchain, it’s hard to say,” he said. “It’s going to evolve into a blockchain 2.0 or distributed ledger 2.0 or some other tech, but it is coming. The key thing is there is no doubt that there is going to be more data in the future coming from more sources and it’s going to be more joined up than it is today.”

The comments follow the release of the article Blockchain: Mechanics and Magic earlier this month, written by risk academic and former CEO of Aon Benfield Analytics, Stephen Mildenhall. Aon said in a press release outlining the article that “while commentators often tout blockchain as a solution to the insurance industry’s processing and back-office inefficiencies, they are missing its true potential: blockchain technology allows for the re-democratization of data – providing access to data where and when required – and for the reassertion of the individual’s control over their private data.”

In this regard, the article said, insurers are well-positioned to provide the infrastructure and alternative revenue model that will replaced “outmoded and insecure centralized networks” with distributed blockchain solutions. “According to this study, this ‘revolutionary model’ represents the true potential of the blockchain for the insurance industry.”

Attorney: Good Installation, Strong Insurance are Vital for Window Companies

DWM Magazine | June 22, 2017

On Tuesday, attendees at the American Architectural Manufacturers Association (AAMA) Summer Conference in Newport, R.I., heard a presentation from Chip Gentry, a founding member of the Call & Gentry Law Group, about the important role of proper installation and good insurance when it comes to avoiding litigation.

“Build it ‘cheaper and faster’ is a core cause of construction defects,” said Gentry. “It means an inferior final project, and it’s a chronic problem.”

Some of the biggest risks are lofts and apartment conversions and redevelopments, hotels, condos, centralized owners and high-volume products, he said.

“Bad building or design cases manage to become bad window cases,” said Gentry. “They’ll sue the general contractor, and water in a building is blamed on fenestration no matter where it shows up.”

Construction-defect litigation is time-consuming and draining, both financially and emotionally. And when more parties get involved, it can make it harder to reach a settlement. Often there are fights between insureds and insurers, and it can be difficult to get people on the same page, said Gentry.

Fenestration companies are sued most commonly for things like contract disputes, disgruntled employees, patent litigation – and, more often than not, installation issues.

“Installation mistakes are a big one, and they can be prevented,” said Gentry. “We have to be at least somewhat involved in installation because of this.”

Gentry, who is also a blogger for DWM, offered several of the most common installation mistakes that can lead to litigation. Among them are not sealing house wrap, lack of end dams, flashing or subsills, and poor shimming. Poor caulking is also a common mistake, whether it means not cleaning the substrates thoroughly, not using the proper tools, or not leaving space for caulk to expand or shrink.

Final checks matter, Gentry said.

“Installers are the face of the window industry,” he said. “You have to see, does it open? Does it close? Does it lock? Were specs followed? Get your standards set; be involved in specs. Get boots on the ground, and make sure it’s done right.”

A dollar today can save your company millions tomorrow, he added.

Aside from avoiding installation mistakes, the best thing you can do is have good insurance, said Gentry. He recommended making sure you have enough insurance limits to effectively protect you.

“Be better prepared,” he said. “Be aware of the various clauses you can shop for that provide better and more meaningful protections for your company.”

Knowing your rights is also critical, said Gentry.

“You have a right to add counsel of your choice,” he said. “Find one with fenestration experience and knowledge of your company. Find a reputable broker you can trust, who has experience in window manufacturing, to make sure you have the right insurance.”

To keep costs low, avoid, or at least limit, claims. Manage risk by keeping track of prior claims and erosion of limits. Update a list of claims under each policy. Be prepared for a carrier to sue. Control exposure, and keep a paper trail.

Finally, Gentry advised all to keep their old policies.

“Old insurance policies are golden,” he said.

Washington Supreme Court Applies Efficient Proximate Cause Test to Pollution Exclusion

Traub Lieberman Straus & Shrewsberry LLP | May 2, 2017

In its recent decision in Xia v. ProBuilders Specialty Ins. Co. RRG, 2017 Wash. LEXIS 443 (Wash. Apr. 27, 2017), the Supreme Court of Washington had occasion to address the concept of efficient proximate cause as it relates to the application of a pollution exclusion.

At issue in Xia was ProBuilders’ coverage obligation under a general liability policy for an underlying claim involving a hot water heater in a new home constructed by its insured.  An exhaust vent for the heater had not been properly installed, thus allowing for carbon monoxide to be released directly into the home and causing injury to the home purchaser.  ProBuilders denied coverage to its insured on the basis of its policy’s pollution exclusion, as well as on the basis of another exclusion not at issue on appeal.

The Court began its analysis by looking to its prior case law concerning the pollution exclusion, in particular its decisions in Cook v. Evanson, 920 P.2d 1223 (1996), Kent Farms, Inc. v. Zurich Ins. Co., 969 P.2d 109 (1998), and Quadrant Corp. v. American States Insurance Co., 110 P.3d 733 (2005).  Through these decisions, the Court limited application of the pollution exclusion to traditional environmental harms or to harms inflicted on persons as a result of pollutants acting as pollutants.

In Kent Farms, the Court held that the exclusion was inapplicable where an individual was injured as a result of being sprayed by diesel fuel whereas in Quadrant, the Court held the exclusion applied to a claim involving alleged injuries resulting from decking sealant.  The Court harmonized these cases by noting that in Kent Farms, the claimant was not injured as a result from the diesel fuel acting as a pollutant, but instead from the force and impact of the spray. By contrast, in Quadrant, the claimant was injured as a result of the toxicity of the sealant.  As the Court noted:

As discussed in Quadrant, the facts in Kent Farms did not result in a pollutant acting as a pollutant in such a way that would trigger the pollution exclusion. If the diesel fuel in Kent Farms had been replaced with water, for example, the liquid would still have struck, choked, and engulfed the victim just as surely as the diesel fuel—albeit with less severe consequences. As this court noted, the toxic nature of the pollutant was not central to the event that triggered coverage under the insurance policy. Id.

With this context in mind, the Court agreed that the underlying claim in Xia, involving injuries as the result of exposure to carbon monoxide, could come within the pollution exclusion.  The Court nevertheless observed that per the rule of efficient proximate cause, when a “covered peril” sets in motion a causal chain, the last link of which is an “uncovered peril,” then there is coverage under the policy.  The Court reasoned that this analysis should apply in the context of a general liability policy if a covered “occurrence” gives rise to a loss that might otherwise be excluded.  The Court noted, however, that there are limitations to this rule:

… the efficient proximate clause rule applies only “when two or more perils combine in sequence to cause a loss and a covered peril is the predominant or efficient cause of the loss.” … It is perfectly acceptable for insurers to write exclusions that deny coverage when an excluded occurrence initiates the causal chain and is itself either the sole proximate cause or the efficient proximate cause of the loss.

But such an exclusion, explained the Court, cannot overcome the efficient proximate cause rule.  The Court reasoned that the non-standard pollution exclusion in ProBuilders’ policy applicable to any harm “regardless of the cause of the pollution and whether any other cause of said bodily injury, property damage, or persona injury acted jointly, concurrently, or in any sequence with said pollutants or pollution” was improperly broad since it would have circumvented the efficient proximate cause rule.  The Court, therefore, held that this causation language was unenforceable.

With this in mind, the Court turned to the question of what was the efficient proximate cause of the underlying claim.  The Court observed that the underlying suit alleged that the carbon monoxide resulted from the improper installation of the hot water heater’s venting, which in and of itself would be a covered “occurrence” under ProBuilders’ policy.

ProBuilders’ argued that the Court’s application of the efficient proximate cause rule would essentially negate the pollution exclusion, since all acts of pollution can be traced to an accident or an instance of negligence that could qualify as an “occurrence” under a general liability policy.  The Court did not agree, observing that when the pollution event is the first step in the chain of causation leading to the injury, such as application of flooring sealant, then the pollution exclusion will apply.  The Court further reasoned that ProBuilders could have drafted a more specific exclusion applicable to the occurrence giving rise to the pollution, such as an exclusion applicable to installation of home fixtures of hot water heaters, which would have avoided the efficient proximate cause rule.

In summing up its decision, the Court explained:

Pollution exclusion clauses are an important tool for insurers to avoid liability stemming from loss caused by pollutants acting as pollutants where the insured has paid no premiums for such coverage. However, emphasis must be given to the phrase “caused by.” The efficient proximate cause rule continues to serve the underlying purpose of insurance policies and applies just as effectively to these facts as it has in prior cases. We hold that the efficient proximate cause of Xia’s loss was a covered peril: the negligent installation of a hot water heater. Although ProBuilders correctly applied the language of its pollution exclusion to the release of carbon monoxide in Xia’s home, ProBuilders breached its duty to defend in the face of an alleged covered occurrence that was the efficient proximate cause of the loss.

The Court therefore held that ProBuilders improperly breached its duty to defend, and did so in bad faith.

Claims Handling Requirements by State – Oregon

Robert Trautmann | Property Insurance Coverage Law Blog | April 30, 2017

Next up in our state-by-state anthology of claims handling guidelines is the Beaver State – Oregon. Claims handling in Oregon is governed by the Oregon Administrative Rules.

Oregon gives insurance carriers a long time to acknowledge claims as compared to many other states; in Oregon carriers must acknowledge a claim not later than 30 days after receipt of the claim.1 Within those first 30 days they must also provide all necessary claims forms such as a proof of loss.2 They must also reply to all pertinent communications with regards to the claim within 30 days of reciept.3 Thereafter the carrier carrier must complete its investigation of the claim within 45 days.4 If they cannot complete their investigation within 45 days, they must notify the insured of the need for the extra time along with the reasons therefore and continue to so advise every 45 days thereafter.5 They also must advise as to the acceptance or rejection of the claim no later than 45 days after receipt of a proof of loss.6

Additionally, an insurance carrier must not refuse to settle a claim on the grounds that another party may be financially responsible for the loss.7 Finally, if a first-party insured is not represented by an attorney, the insurance carrier must advise them that their claim may be affected by a statute of limitations at least 30 days before it would expire.8

As always, please let me know if you have any questions or requests to move a state up on the list in our 50-state tour.

1 Or. Admin. R. 836-080-0225(1).
2 Or. Admin. R. 836-080-0225(4).
3 Or. Admin. R. 836-080-0225(3).
4 Or. Admin. R. 836-080-230.
5 Or. Admin. R. 836-080-0235(4).
6 Or. Admin. R. 836-080-0235(4).
7 Or. Admin. R. 836-080-0235(5).
8 Or. Admin. R. 836-080-0235(6).