This installment of my blog series goes hand-in-hand with my last blog post, When Words Collide: Insurance Policies as Contracts of Adhesion. Whereas the last post discussed the idea of an insurance policy as a contract of adhesion, meaning that insurers usually have much higher bargaining power in the parties’ contractual relationship, this blogpost dives a bit more into the overall “purpose” of insurance.
Policyholders who have been wronged by their insurance company in the past may be left with a sour taste in their mouth, questioning why they have paid their premiums only to have their claim denied. “If I timely pay my premium, follow all conditions necessary and still get my claim denied, what is the purpose of insurance?!”
The truth is, the overall purpose of insurance is to insure. The Insurance Golden Rule, according to author Bill Wilson, goes a little like this:
‘Never, ever forget in everything that you do professionally that the purpose of insurance is to insure and that the mission of this industry and every professional in it is to assist individuals, families and organizations in minimizing their exposure to serious or catastrophic financial loss.’ This begins with the insurance contract and ends with YOU.1
In his book, When Words Collide: Resolving Insurance Coverage and Claims Disputes, Bill Wilson describes the “10 Commandments of Policy Interpretation.” These 10 doctrines are vital for anyone—from policyholders to attorneys to adjusters. Understanding these 10 commandments will ensure that you, the policyholder, are ready and knowledgeable if ever faced with a claim situation.
To reiterate what the 10 doctrines are, they are described as:
- Insurance is NOT a Commodity
- RTFP! (Read the FULL Policy)
- Don’t accept a claim denial as gospel
- The purpose of insurance is to insure
- All parties have a duty of utmost good faith
- Most insurance policies are contracts of adhesion, so insuring agreements are interpreted broadly, exclusions narrowly and ambiguities in favor of the insured
- The burden of proof in determining coverage rests with both parties in the insurance contract
- Exclusions must be clear and conspicuous
- The duty to defend is broader than the duty to indemnify
- Folklore is not a fact2
The Insurance Information Institute describes the purpose of insurance as:
Technically, the basic function of property/ casualty insurance is the transfer of risk. Its aim is to reduce financial uncertainty and make accidental loss manageable. It does this substituting payment of a small, known fee—an insurance premium—to a professional insurer in exchange for the assumption of the risk a large loss, and a promise to pay in the event of such a loss.3
Of course, not every insurance claim is handled in the way it is supposed to be handled. I would likely not have my job if this were the case. The purpose of insurance is to insure, and to do so in good faith. Bill Wilson uses this quote when discussing the purpose of insurance along with duty of good faith that insurers owe to its policyholders:
[There is a] requirement to meet the duty of good faith to the insured. The most positive way to do that is to look for coverage in our policies, and not to look for ways to deny coverage.4
The insuring process begins with a policy that is extremely broad, so that it can meet the needs of many different insureds. It is not until a claim is made, and the policy is analyzed and explored further, that coverage may in fact not be available. The insurer’s duty of good faith must be used in this process so that claims that should be covered are covered.
When discussing this point, Bill Wilson states that during the analysis of an insurance claim, the “presumption is that what happened is covered.”5 And that is where the policy interpretation doctrine, the Purpose of Insurance is to Insure, comes from. It is covered until it is not.
The year 2020 is now history. Let us begin 2021 with the Insurance Golden Rule in mind, and have a safe, risk-free new year.
1 Bill Wilson, When Words Collide: Resolving Insurance Coverage and Claim Disputes (2018).
2 Bill Wilson, When Words Collide: Resolving Insurance Coverage and Claim Disputes, 75 (2018).
3 Insurance Information Institute, Insurance 101, https://www.iii.org/article/insurance-101
4 Bill Wilson, When Words Collide: Resolving Insurance Coverage and Claim Disputes (2018) (quoting 1983 Travelers Insurance Company claims manual ‘Analysis of Liability Coverage’ section).
5 Bill Wilson, When Words Collide: Resolving Insurance Coverage and Claim Disputes, 82 (2018).