Chantal M. Roberts has written an excellent article, “The Peril of Misinterpretation,” 1 that every property claims professional should read. Her central message is simple, but it is too often ignored. She argues that an adjuster cannot properly determine coverage by reading one exclusion, quoting several pages of policy language, and simply closing the file. Instead, a proper coverage analysis always requires reading the entire policy, investigating the facts, and determining whether an exception, coverage giveback, or ensuing loss provision restores coverage that initially appeared to be excluded.
Roberts uses a homeowners water-loss claim to demonstrate how complicated that analysis can become. The policy contains exclusions for water, deterioration, mold, rot, and damage to certain retaining walls. Yet elsewhere in the policy are exceptions to those exclusions and language preserving coverage for ensuing losses. The coverage answer cannot be found by stopping at the first provision that appears favorable to the insurance company.
Roberts offers this important practical advice:
Reading a policy and adjusting a claim may seem like easy tasks, but exclusions may be located several pages apart from exceptions to the exclusions, making careful study of the full policy imperative.
An insurance professional should never say that “everything is covered” merely because the policyholder has an open perils policy.
Moreover, the adjuster should not include superfluous policy language in the coverage declination letter.
Her last point deserves more attention because it is so often abused. Far too many denial letters resemble policy-language dumping grounds. They recite pages of exclusions, conditions, definitions, and limitations without explaining which provisions actually apply to the facts of the loss. It is often frustrating for me to determine the exact issue and facts that the insurer is relying upon to determine a loss when reading these epistle denials.
A longer denial letter is not necessarily a better denial letter. To many, we simply see it as an attempt to create the illusion of coverage analysis. A proper coverage letter should identify the relevant facts, explain the investigation, quote the policy language that actually applies, and connect that language to the coverage determination. Irrelevant provisions should not be included merely because they appear near the provision upon which the insurer intends to rely.
More importantly, the coverage determination cannot be made from the words a policyholder uses when reporting the claim. Policyholders are not insurance coverage lawyers, adjusters, plumbers, engineers, or hydrologists. A homeowner may report that a basement “flooded” when the water actually resulted from a plumbing overflow, sewer backup, broken pipe, failed appliance, surface water, groundwater, or some combination of causes.
Those distinctions can determine coverage. The label used during the first telephone call should not.
Roberts explains:
Adjusters cannot determine coverage solely from the notice of loss. First, the policyholder may not use the correct words when describing the loss. Second, it would be, in most states, a violation of the Unfair Claims Settlement Practices Act to determine coverage without an investigation. And third, as shown above, sometimes coverage can be extended through an exception to the exclusion.
…
Insurance professionals from agents to adjusters must listen carefully to the description of the loss, extending the policyholder every benefit of the doubt to find coverage while still adhering to the policy and the interests of other insureds.
This is what good faith claims handling should look like. The investigation should search for the truth of what happened and not for terminology that will support a predetermined denial.
A property claims adjuster must determine where the water originated, how it traveled, what it damaged, whether multiple causes were involved, and whether any resulting damage is covered even though another part of the loss is excluded. The adjuster must then return to the policy and read every potentially applicable provision together.
An exclusion may remove coverage for one item without eliminating coverage for everything that follows. An exception may restore coverage. An ensuing loss clause may preserve coverage for separate resulting damage. Another provision may alter the analysis yet again.
Roberts’ article should also remind claims managers and executives responsible for the claims function that staff adjusters need sufficient education, supervision, authority, and time to perform this work. An adjuster carrying an impossible inventory will be tempted to rely on claim codes, templates, snippets of policy language, and the initial description of the loss. Speed may close a file, but it does not necessarily resolve the claim correctly.
The policy must be read as a whole. The facts must be fully investigated. Exceptions must receive the same attention as exclusions. Anything less risks turning the insurer’s contractual promise into a scavenger hunt in which only provisions supporting denial are allowed to be found.
Readers interested in this topic should also read Ensuing Loss Clauses Are Often Confusing, which discusses why courts and claims professionals continue to struggle with these deceptively complicated provisions.
Thought For The Day
“The adjuster cannot expedite the process without compromising the quality of the assessment.”
—Chantal M. Roberts, “The Claims Handling Process for Agents: An Adjuster’s Perspective”
1 Chantal M. Roberts. “The Peril of Misinterpretation.” Insights. Winter 2024.
