Magazine article Risk Management

Check and Double-Check

Magazine article Risk Management

Check and Double-Check

Article excerpt

Major advances over the past decade have been embraced by businesses in virtually every sector, except one--the insurance industry. The insurance industry has been slow to change its business practices and nowhere is this more noticeable than in preparation and delivery to policyholders of their property/casualty insurance policies.

One common problem for policyholders is that insurance policies are frequently finalized and delivered by insurers months after policy inception--if they are delivered at all. Another problem is that insurance coverage documents may be riddled with errors. It is not uncommon for an insurance broker to check a policy after issuance and discover significant errors, assuming the broker even reviews the policy in the first place. Many brokers do not, and even among those that do, the process of checking the policy is often delegated to people within the brokerage who have limited knowledge of what coverage is required by the policyholder and what some of the critical negotiations over coverage may have involved during the purchase phase.

Unfortunately, this problem is made worse by the first problem. The longer it takes the insurer to deliver the policy, the more likely it is that the policy will contain errors that are not identified early enough in the process--say, before a claim takes place. This can be devastating. If the broker does not catch the problem, the policyholder is left trying to match up the coverage they thought they purchased months ago on the basis of often confusing and complicated policy language.

Additionally, if the policy contains errors, it can be difficult to bring proof of those errors to a court's attention should a claim dispute evolve in the interim. Insurance company lawyers and lobbyists have done a very good job over the past several decades of convincing courts and regulators that insurance policies are ordinary commercial contracts. As such, insurers regularly argue to courts that the court should not consider parol-type evidence (evidence outside of the policy form itself) to determine the coverage or intent of the parties.

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This means that there is an inconsistency in the insurance policy with the insurance binder, cover note, placing slip, etc. over even fundamental coverage terms, the insurer will likely argue that the erroneous policy controls. …

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