How many readers of this blog are professional risk managers who have studied the risks we face? Few. Liberty Mutual’s new slogan seems common sense and is catchy. It is deceptive because it undermines the role of professional insurance agents and risk managers. Most of us do not fully understand the real risks we face, and the reason why the most costly risks result in costly premiums is that they are the major risks we face.

I was thinking about the Liberty Mutual advertising campaign while researching how a Florida church decided it was economical to remove “named windstorm” insurance from its policy shortly before two hurricanes damaged it. The crazy thing about the case is that after giving a premium discount for the “named windstorm” removal, the insurer did not issue a policy that excluded that peril.

The point of the policyholder’s motion for summary judgment was that the hurricane claims were denied, and the policy had no exclusion that applied. Indeed, all the defendant insurance company adjusters admitted that the policy and its endorsements contained no language which would exclude the loss from hurricane damage.

The insurer’s motion for summary judgment contained the important point that the policyholder asked how much cheaper it would be to remove hurricane damage from the policy and accepted a reduced premium in return for a policy that provided no coverage for a “named windstorm.” It also noted that at the time of the first change, an endorsement was issued removing “named windstorm” from coverage.

When a policyholder chooses to buy a cheap insurance policy in Florida that will provide a huge coverage gap to the most important coverage in Florida, I bet the conversation often starts in the manner highlighted in the insurer’s motion for summary judgment:

Shiloh’s insurance agent contacted Burns & Wilcox, the policy’s broker, regarding removing named windstorm coverage, stating, “[T]he insured has contacted me regarding this policy. They would like to know what the premium would be without hurricane coverage . . . please help me with this.

The church asked for and was provided a cheap insurance policy. But the renewal policies did not reflect the change! What happens?

The insurance company argued two points to win:

  1. The application which indicated that hurricane coverage was not asked for is part of the policy.
  2. The policy should be reformed to meet the intention of the policies.

The trial court analyzed the situation as follows:1

The two policies in effect when Plaintiff’s building incurred damage do not, alone, say anything explicit concerning damage resulting from a named windstorm. (See generally Doc. Nos. 25-10, 25-14). But Florida law instructs that ‘[e]very insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended, or modified by any application therefor or any rider or endorsement thereto.’ Fla. Stat. § 627.419(1)…see State Farm Mut. Auto. Ins. Co. v. Mallard, 548 So. 2d 733, 735 (Fla. 3d DCA 1989) (‘Where the policy is ‘amplified, extended, or modified’ by inconsistent terms or conditions in the application, the inconsistent provisions are not disregarded. Rather, the policy is then construed taking into consideration those provisions.’). Indeed, documents obtained during the application ‘bec[o]me part of the policy,’ and the ‘the insurer is entitled to rely on the representations made by an applicant in the application for insurance.’…

Using this standard to evaluate the policies at issue, undisputed facts make plain that named windstorm coverage was excluded from each of Plaintiff’s policies from July 2015 forward….

… the reduced premium Plaintiff earned as a result of dropping named windstorm coverage was carried through to the subsequent policies. Thus, Plaintiff continued to receive the benefit of its July 2015 bargain with Defendant: lower premiums in exchange for reduced coverage. Plaintiff’s contrary argument is premised on the fact that the policies in effect during the hurricanes at issue did not themselves list an exclusion for named windstorms. But construing those policies to include coverage for named windstorms when the parties had explicitly bargained to exclude such coverage— without any subsequent agreement to the contrary—would be a “strained, forced or unrealistic construction” of the policies….

The bottom line from this case is that the party’s intent at the time of purchase is important. Here, it seemed clear that the policyholder wanted a policy without hurricane coverage to reduce the premium.

In this case, the policyholder did not buy the coverage it needed. But it got the coverage it paid for.

Thought For The Day

There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.
—John Ruskin
1 Shiloh Christian Center v. Aspen Specialty Ins. Co., No. 6:20-cv-01774 (M.D. Fla. May 9, 2022).