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Even experienced insurance coverage attorneys can make a number of potentially fatal errors when reading insurance policies for the purpose of advising their client or litigating an insurance dispute. Seven of the more common, and dangerous, mistakes are the following:
1. Forgetting to compare your copy of the policy to the Schedule of Forms and Endorsements. It’s not uncommon for the copy of the policy supplied to us by the insurer or our client to be incomplete or to contain provisions that were not intended to be part of the policy. Thus, the coverage lawyer’s first task is to pull out the “Schedule of Forms and Endorsements,” which usually forms part of the declarations, and verify (i) that every form and endorsement listed therein is contained in the policy provided to us, and (ii) that each form and endorsement in the copy of the policy we’ve received is listed in the Schedule. Otherwise, we may be litigating based upon faulty evidence.
2. Overlooking the scope of introductory clauses to exclusions. Let’s say we have a case involving a floating derrick and we recognize the Policy has a “Watercraft” exclusion. The temptation is to fasten directly upon the definition of “Watercraft,” which is fine, but not if we forget to take careful note of the breadth or narrowness of the exclusion’s introductory clause. Whether the introductory clause is “broad form” or something narrower can be just as dispositive as the wording that describes the excluded risk.
3. Not fully accounting for the effect of self-insured retentions. Self-insured retentions (SIRs) usually make the Insured solely responsible for defense (and often settlement) of the claim prior to exhaustion of the SIR. This can mean that prior to exhaustion, the insurer will have no duty to defend nor usually any duty to dictate the response to a settlement demand falling within the SIR. Also, some SIRs apply on a per-“occurrence” basis and, therefore, their impact may be multiplied depending upon the nature of the claim.
4. Assuming that exclusions will be found only in the section labeled “Exclusions.”
Clauses that may limit or bar coverage commonly appear, not just in the Exclusions section, but also in the Insuring Provisions (or “grant of coverage”), or by way of sub-limits, as well as in the Definitions section. While courts differ on the question, a growing body of decisions concludes that such limiting provisions can be comparable to traditional exclusions. These decisions construe such provisions strictly against the Insurer and place the burden on the insurer to prove they apply.
5. Assuming that notice provisions merely require timeliness. Notice provisions vary, and many require information regarding the amount at issue, identities of witnesses, details regarding the nature of the claim, etc. They may also require notice of any “occurrence,” which can differ from, and may need to be provided earlier than, notice of a “claim.” Thus, even notice provided promptly has been found to be inadequate when it’s deficient in substance.
6. Overlooking endorsements, particularly ones that modify policy limits. I know, the need to read through every endorsement usually is drilled into the head of coverage lawyers. Still, lawyers continue to overlook endorsements. Why? Well, some multi-page endorsements are labeled in a way that lulls a busy reader into thinking them inapplicable to the claim at issue, whereas a painstaking review would reveal that they do modify coverage for the claim. And other endorsements that were meant to be part of the policy may have been left out of the copy provided to us. (See point 1, above). Endorsements are often more pertinent than the boilerplate: we must unfailingly locate and then scrutinize every single one.
7. Reading a lengthy policy solely on screen. Well, it may overstate the case to say that doing so is always a “mistake.” And for attorneys working from home, it can be onerous to have to wear out our printer printing a 150-page policy. But at the same time, know that there is abundant scientific data indicating that persons reviewing documents in hard-copy form gain a better understanding, on average, than people reviewing the same documents on-screen. So at least in the big dollar case, it’s recommended that we strive to print out a hard copy to review. Among other things, it helps us orient ourselves within the policy and to cross-reference various intersecting provisions.
My comprehensive CLE, “How to Effectively Read and Understand Liability Insurance Policies,” covers these and numerous other pitfalls and issues to help attendees become superior coverage attorneys. You can register via the homepage for this site.
