In my book “When Words Collide: Resolving Insurance Coverage and Claims Disputes,” I give eight (8) reasons why :
- Don’t read policy forms because they don’t care (apathy or price focus);
- Don’t read policy forms because they don’t think there’s really any difference (the “Insurance is a Commodity” myth);
- Don’t read policy forms because they believe they don’t have the time or it wouldn’t be a productive investment of time;
- Don’t read policy forms because they’ve never been trained to read, understand, and interpret insurance contracts;
- Can’t read policy forms (due to functional illiteracy?);
- Read but can’t or don’t understand policy forms;
- Read and THINK they understand policy forms but are not adequately tested by traditional educational and training approaches; or
- Read and perhaps understand policy forms but can’t apply them to real-life coverage or claims scenarios.
For some individuals, some of these are inexcusable, some are unavoidable, and some are unfortunate. Reason #7 can be addressed, with some effort, via proper training and education. Reason #8 may be addressed by recognizing that reading the policy in isolation isn’t enough. HOW insurance contract language applies to a particular claim often depends on the facts and circumstances of the claim itself.
A good example of this is whether a homeowners policy covers the use of a riding lawn mower:
This article illustrates that coverage depends on WHY and/or HOW the riding mower is being used. In fact, once that event occurs, it may affect coverage in the future even if the riding mower is being used in a way that would otherwise be covered. And consumers are expected to handle their insurance decisions without the assistance of an educated professional?
As another illustration I used in a webinar yesterday, let’s say you and a friend are traveling 500 miles by car on vacation. Rather than use your own auto, you rent a car for the trip. In route, you get tired and allow your friend to drive the vehicle. You have auto insurance, but she doesn’t. So, of course, she has a wreck. Does your ISO Personal Auto Policy (PAP) cover her? The answer is, it depends.
The ISO PAP covers permissive users of “your covered auto.” ISO defines this term to include declared autos, acquired autos, owned trailers (even if not declared), and temporary substitutes. A temporary substitute is a nonowned vehicle being used because your vehicle is out of normal used due to breakdown, repair, servicing, loss, or destruction.
So, for example, if you rented the car because your declared auto was in the shop being repaired or serviced, your friend is an insured under your policy while using the rental car. On the other hand, if you simply rented the auto because you feared your car wouldn’t make, you wanted to travel in style, or any other reason, then your friend is not covered by your policy.
In these two scenarios, everything is exactly the same EXCEPT the reason why you rented the auto. And this makes all the difference in coverage. Supreme Court justice Oliver Wendell Holmes, Jr. once said:
“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.”
Similarly, a word, phrase, or policy provision in an insurance contract may mean different things under different circumstances.
Forms AND facts matter.
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