The systematic process of analyzing a property insurance policy has been a topic in my last three seminars before public adjusting groups. I am suggesting a methodology so issues are uncovered early following a loss. After having all paperwork in place, I suggest that the first item to consider is "who" is insured under the policy.
"Who" is insured is important. What happens if the named insured is not the party that owns the damaged property? Who should be named in a contract for representation? What happens if a public adjuster names one but leaves off two other insureds to a contract and then the other two object to payment for services? Who should be on the check for payment by the insurer? Does the named insured and any additional insured have an insurable interest in the property?
The most common problem is that many agents of commercial interests fail to get all the entities to a commercial enterprise named and named correctly. Rarely does the operating entity of a family business actually own the building where the separate business entity operates, but it is common for commercial policies to list only the operating entity as the named insured.
For personal residences, who is insured usually becomes a significant issue following death, divorce or separation. There are legions of reformation cases brought to correct these after the loss—problems which could have been corrected with proper underwriting and clerical changes before the loss. When some insurers have an opportunity to avoid payment on a property insurance policy because "the insured" is not listed properly on the policy, this technical opportunity is too lucrative to pass up.
A recent example of an insurer and its counsel trying to escape liability for a loss because of these is Zurich American Insurance Company. Last week, a New York judge noted that Zurich and its lawyers contended "that coverage for damages suffered by plaintiff’s affiliates, not named in the policy, are not recoverable under the Policy."1 Fortunately, New York law is rather liberal in preventing insurers from invoking this defense:
The name of the insured in the policy is not always important if the intent to cover the risk is clear. . .[These cases] are understood to stand for the proposition that if an insurance policy inaccurately recites the party for whom it was intended that coverage for the subject risk would be available, then that intended insured could receive coverage, despite not being named in the policy. . . .
The name of the insured as stated in the policy is not the sole factor to be considered in determining who was the intended insured….Likewise, in a similar construction context, a more recent court held: It is undisputed that the subject policy was procured in order to insure against risks attendant to a commercial construction project on a specified parcel of property.
Obviously, it was the character of the property and the project that was proposed to be undertaken thereon (both of which were properly identified) that defined the risk; the identity of the owner was comparatively unimportant. Recognizing that [t]he name of the insured in the policy is not always important if the intent to cover the risk is clear, it is our view that Shaker Pine was entitled to equitable reformation of the policy to correct the obvious inadvertent misidentification of the named insured. N. Y. Cas. Ins. Co. v Shaker Pine Inc., 262 AD2d 735, 736-37 (3d Dept 1999) (emphasis added; internal citations and quotation marks omitted)… Indeed, Lipschitz and its progeny recognize that coverage determinations must turn on the question of whether the parties’ intended to cover the underlying risk, not which corporate entity was the intended insured. Lipschitz, 226 AD at 840 (“The name of the insured in the policy is not always important if the intent to cover the risk is clear.”)
Of course, all this is usually avoided if the insurance agent makes a full inquiry of the insurance customer and presses the importance about properly naming all the entities while warning of the ramifications of failing to do so. But, this often does not happen and policies get written improperly with the right "who" nowhere to be found.
‘Who" is insured is usually taken for granted by adjusters. It is an important inquiry that should be the first step of a property insurance policy analysis following a loss.
Here are some more posts on this important topic:
- Hey, That’s Not the Insurance Coverage That We Agreed to – Lessons on Reformation of an Insurance Policy, Part I
- Hey, That’s Not the Insurance Coverage That We Agreed to – Lessons on Reformation of an Insurance Policy, Part II
Positive Thought For The Day
Integrity is doing the right thing, even when no one is watching. Integrity is doing the right thing, even when no one is watching.
—C. S. Lewis
1 EL-AD 250 West LLC v. Zurich American Ins. Co., 2016 WL 1241933 (N.Y. Sup. March 30, 2016).