An insurance policy is a very unique contract in the sense that when the contract is fully performed it is considered a “loss”. The concept of “loss” has evolved as a term of art created by the insurance companies. Here are a few simple Rules when reviewing your insurance contract:
A Burning Policy is an insurance policy that provides limits of coverage but also includes the amount of money spent on defending the policyholder. Therefore, when a policy limit demand is made, the actual amount available to recover is reduced by the amount spent on defense attorney fees to date. The policy limit demand must indicate that whatever is available is being sought as recovery and acknowledges that the amount may be reduced by any amounts spent on defense costs thus far. Failure to provide this language may be an obstacle in pursuing an insurance bad faith claim in the future, and accordingly may also be considered legal malpractice by the plaintiff’s counsel. Furthermore, the plaintiff’s attorney should ask the policyholder during a deposition if they are “aware” that a policy limit demand was made on the claim. The attorney defending the deposition may object based on attorney-client privilege, but the information is not in fact protected because the question is not asking what was discussed with the policyholder’s attorney. Rather, the question merely asks whether the policyholder is “aware” that a policy limit demand was made. This sets the groundwork for an insurance bad faith claim in the future. In addition, the policyholder, even as a named defendant, is also able to assign their rights under the policy to the plaintiff. Although, the policyholder will be bound to cooperate with the insurance company throughout the litigation process.
Key Words and Phrases to be mindful of within the insurance contract include:
Certain rules of interpretation have been established by the Courts when considering an insurance contract.
For example, provisions that provide coverage (e.g. the insuring agreement, exceptions to exclusions) are interpreted broadly and in favor of providing coverage to the policyholder. However, the policyholders bear the burden to establish that coverage applies.
Likewise, provisions that limit or restrict coverage (e.g., exclusions, definitions used to take away coverage) are interpreted narrowly and against the carrier. The carriers bear the burden to establish that an exception or exclusion applies. Exclusion must be conspicuous, plain, and clear.