Not to Mention the Cavalry

Many insurance claims are straightforward and policyholders are often surprised by how quick and painless the process of making such a claim can be.

The policyholder's perception of straightforwardness and that of the insurer are not always perfectly aligned, however. Especially difficult are the situations where the insurer itself does not understood the cover that it has given. Frequently, we then see the illicit phenomenon of "underwriting at claim time" in which an insurance company tries to pretend, sometimes even to itself, that the cover was narrower than expressed in the words of the policy written by it.

There is rarely any excuse for an insurer which finds itself in this situation. Usually, it is not really the underwriting department's fault. A sales person will think up a policy "extra" to help to make the policy sell better but will fail to get his underwriting colleagues to price the cover properly, or will bully them into agreeing an "optimistic" price.

Not always though. Mr Roy Mura in this article brings to mind a class of coverage which often gives problems in an entirely predictable, and therefore inexcusable, way.

It concerns the word "household", one which to me is starting to sound archaic and even a bit quaint. What is a household these days, anyway ? Is it a nuclear family of two parents and 2.4 children ? How about a lodger ? The mother-in- law in the attached granny flat ? The adult son returned from a bad marriage ? The live-in girlfiend (that was originally a typographical error, but I decided that it might not be so inappropriate !) who turned up almost simultaneously ? The au-pair ?

Another question is whether it is misusing language to refer to some people as having a household at all. This aspect arose in the only reported decision from this side of the Atlantic on the interpretation of the word, English v Western[1940] 2 K.B. 156. Mr English - whose name paradoxically indicates that his family may well have been of Irish origin - had a motor accident in which his sister was injured. His insurer sought to avoid paying her compensation on the basis that the policy excluded liability for injuries to any member of the driver's household. The Court of Appeal, reversing the trial verdict, held that, as both siblings lived at home and were dependent on their parents, young Mr English had no household, properly speaking.

That was in 1940. You might think that nowadays any policy that offers coverage to members of a household would make plain what it includes and excludes. Some may do. Many others do not. Like Mr Mura, I cannot remember ever seeing a definition of the term "household" in a homeowners policy, or in any other policy for that matter. (And I have looked at quite a few in my time).

It is not that this vagueness has gone un-noticed. In Auerbach v Otsego Mut. Fire Ins. Co, the court observed that

the term "household" repeatedly has been characterized as ambiguous or devoid of any fixed meaning

In the U.S., the courts seem to have often engaged in a fairly protracted enquiry into what can have been the true intention of the parties when they agreed on the inclusion of the word in the policy. This surprises me, as my sense would have been that American judges were less sympathetic to insurers than their English counterparts in particular - it is generally otherwise with the Irish judiciary - and, in my view, the line likely to be taken both in England and in Ireland would be to emphasise the fact that nearly all insurance policies are not freely agreed as to detail, but are contracts of adhesion i.e. the policyholder essentially has to take them or leave them in their entirety. When courts encounter ambiguity in the wording of such contracts, they tend to give the "taker" the benefit of any doubt; this is known as the contra proferentem rule.

All the more reason for insurers to "tighten-up" their contract language. I hope that they have done so for the cover issued to the British royal family, at least.

Update on Friday, August 19, 2011 at 05:09PM by Fergus O'Rourke

Link to Roy Mura's post repaired

Update on Thursday, November 29, 2012 at 10:43AM by Fergus O'Rourke

Here is another ordinary, but crucial, word left undefined: this time it is "reside"

Comments

[Roy A. Mura]

Happy New Year, Fergus. Nice post. I especially liked your "underwriting at claim time" reference. Although I represent insurers more often than policyholders, the integrity of contract interpretation depends on insurers honoring the terms of their contracts with their policyholders. Just yesterday, for example, I had occasion to review the question of whether damage to a mobile home on an insured's property was covered under the Coverage B--Other Structures section of the insured's homeowners policy. A claims examiner at the company was leaning in the "underwriting at claim time" direction, thinking that there MUST be something wrong with covering a mobile home under a homeowners policy. A review of the plain policy language, however, compelled the conclusion that there was cover(age) for the loss. As a coverage attorney, it is always a somewhat delicate task for me to tell a claims examiner what he or she may not want to hear, namely, that inclinations aside, policy language controls. The importance of honoring the terms of an insurer's agreement with its policyholder cannot be overstated. And you're right, it's time for insurers to review and "tighten up" terms such as "household" in their policies to reflect better both underwriting intent and societal changes that impact such terms.

Regards.

[Term Life Insurance]

Nice post ! Very complete and detail information. That’s what i need. There are millions of sites online offering information on all things insurances. Some provide very helpful information about very good products and some are a total waste of your valuable time and money. Well done bro !