If nothing else, recent natural disasters have shown us the importance of carefully reading insurance policies before we buy them. But many people won’t do that, so that leaves it to attorneys to figure out coverage after disaster strikes. Attorneys faced with this task need an organized approach to determining whether coverage exists.
Here’s a step-by-step approach to reading, analyzing, and interpreting almost any kind of liability insurance policy:
- Obtain copies of all policies that might apply to the claim.
- Obtain complete copies of policies by filling out the Insurance Policy Inventory Form for each applicable policy, which should include a binder (if issued), the policy jacket, the declarations page, a package of policy provisions, and any endorsements.
- If you don’t have complete copies of every applicable policy, check with the insured, the insurer, and any agent or broker.
- After you have obtained complete policies, determine whether you’re analyzing coverage to ascertain if there is a duty to defend or a duty to indemnify, or both.
- Read and analyze the declarations page of each policy to ascertain the identity of the named insured, the policy period, the types of coverage available under policy, and the coverage restrictions.
- Read and analyze the insuring clause(s) of each policy to ascertain what risks are covered. Determine:
- Who is insured;
- What damages are covered;
- What activity is covered, either an “occurrence” or the “conduct of the insured”; and
- Whether the policy is an occurrence, a claims-made, or a claims-made-and-reported policy.
- If the risk appears to be covered by the insuring clause(s), read and analyze the endorsements to ascertain whether coverage is affected.
- Read and analyze the policy definitions.
- Read and analyze the conditions to ascertain whether the insured has complied with his or her obligations under the policy.
- Read and analyze whether there are applicable exclusions in the basic policy form and/or in the endorsements.
- Determine whether the case involves contacts with more than one state.
- Determine whether the loss was proximately caused by the insured and, if so, whether the cause of the loss was a risk covered by the policy.
- Examine principles of interpretation, i.e., if the policy terms are not ambiguous, apply the plain meaning of the terms; if the policy provisions are ambiguous, examine the parties’ intent when contracting, ascertain whether extrinsic evidence will clarify the provisions, and apply the principle that ambiguous terms are construed in the insured’s favor.
- Apply case law and secondary sources to interpret the policy.
- Ascertain whether any statutes affect the scope of coverage under the policy.
- Ascertain whether the policy provides primary or excess coverage.
Not sure what some of these steps entail or what is meant by certain terms? CEB’s got you completely covered: chapter 3 of our California Liability Insurance Practice: Claims and Litigation describes in detail each step. Want to learn more about insurance law? Check out CEB’s program Hot Topics in Property & Liability Insurance for a review of property and liability insurance law for transactional and litigation attorneys, in addition to some of the hottest coverage issues.
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