Insurance Policies Demand Careful Review!

INSURANCE POLICIES DEMAND CAREFUL REVIEW!

Because insurance policies are legal documents, some agents and brokers mistakenly assume that they have been subject to meticulous examination by the insurer prior to delivery. A careful review of the policy by the drafters and the broker or agent should guarantee that the policy fully expresses the intentions of the insurer and the expectations of the insured, and that the documents use proper grammar and punctuation. After all, these documents are often interpreted by the courts, where nuances of word choice, punctuation, and grammar may make the difference between a covered claim and an uninsured loss.

Unfortunately, the level of quality control of even the most prestigious of agents, brokers, and insurers is sometimes low. Poor English is often the rule, and the readability of some policies can be described only as tortuous. One judge reviewing a Directors and Officers Liability policy compared the policy wording to a 'linguistic Tower of Babel.'

If you are involved in drafting language for use in insurance policies or other contracts, we recommend finding a copy of a little book by Richard Wincor entitled Contracts in Plain English. One of the contract blunders Wincor commented on nearly 15 years ago still finds its way into modern policy forms. Here's what Wincor had to say about the misuse of the phrase 'it is understood and agreed':

'Absurd and sometimes dangerous. There is nothing wrong with 'we agree as follows' or something to that effect once at the beginning of a contract, but repetition of 'it is understood and agreed' adds either nothing or something. If it adds nothing, it ought not to be said. Usually, it is the case that it adds nothing, because every clause in the contract is 'understood and agreed' or it would not be written into it. On the other hand, if it adds something, what it adds is a bad thing, namely an implication that other clauses not propped up by this phrase are somehow not understood or agreed on at all. 'Inclusio unius est exclusio alterius' goes the Latin maxim: by including the one, you exclude the other.'

Along with poor draftsmanship, the risk managers we interviewed listed the following common oversights as particularly annoying:

• Policies delivered without proper authorizing signatures
• Incorrect inception, expiration or retroactive dates
• Incorrect spelling or bastardization of the corporate name
• Incomplete or outdated list of named insured or additional insureds
• Property descriptions, locations, limits of liability and deductibles incorrectly scheduled or outdated
• Missing endorsements
• Unexpected endorsements

Too frequently policies are delivered with such obvious omissions, abominable punctuation, and flagrant typographical errors that one might question whether the document was ever read, let alone reviewed. Especially disturbing is the practice of some insurers who 'borrow' wording from a competitor's policy form, replete with errors! The borrowing problem is most acute with manuscript and heavily endorsed policies; however, we are also aware of similar errors in preprinted policy forms.

While we might speculate at great length why this condition exists, the fact is that it does, and at a frequency we find alarming. Brokers and agents should not deliver any type of contract that is less than letter perfect. This is especially true of insurance policies. Policies should be reviewed meticulously and those less than perfect should be sent back to the insurer for correction.

If you encounter policy language that is incomprehensible or is potentially undesirable, don't hesitate to press for a written explanation or modification. Insurance policies should be negotiated by all parties.

Sending the policy back to the insurer does two important things: (1) It communicates to the insured that the broker is doing his job by giving documents a thorough examination. (2) It tells the insurer that shoddy draftsmanship is not acceptable.

While getting documents corrected may take more than one attempt, most insureds will appreciate the extra effort. The broker or agent will also avoid the embarrassment of delivering a defective document. Mediocrity in this area is inexcusable.

Astute agents and brokers will be candid, advising the insured of any policy peculiarities discovered during their initial review. Ideally, such advice will also come with a plan for corrective measures. While most risk managers would prefer the results advocated by the old adage 'right the first time,' agents and brokers eager to point out policy deficiencies generally deserve kudos.

If you consistently get policies with obvious errors, this may be an indication of more systemic problems with the insurance company rather than just plain oversight. Remember: Insurance policies are legal documents- treat them that way!