Caveat Emptor

"Let the buyer beware." This phrase is no more appropriate than in the insurance world, especially when it comes to the terms and conditions of an insurance contract. It is rare that an insurance policy is correctly issued that conforms to all of the terms and conditions that were negotiated and meets the expectations of both parties. A few of the most common problems are:

1. Errors in the limits or deductibles as stated in the policy.
2. Forms or endorsements inadvertently omitted from the policy.
3. Policy amendments intended to satisfy negotiated coverage changes, but incorrectly worded with unintended consequence.
4. New policy limitations or exclusions added without proper disclosure or notice of change. This most often occurs upon renewal when a new or revised policy form, that contains subtle changes with significant impact on coverage, is substituted for the expiring form.

These are but a few common occurrences, some of which are unintended by the underwriter. But they become part of the legal contract and can be problematic when a claim is being adjusted.

The most troublesome of these problems is No. 4, which is also one of the most difficult to identify. A couple of prevalent examples can be found on a typical Property insurance policy. Over the years (for as long as Property insurance has existed), if a loss covered by the policy were to occur, the resulting physical damage would then be covered. This would include such things as water damage and fungus/mold cleanup when resulting from a fire, or pollution cleanup and removal when resulting from an explosion (the fire or explosion being the proximate cause of the loss).

Over the past ten years or so, there has been an increased focus by insurance companies on limiting or excluding coverage for mold or pollution, no matter what the cause of loss. Early attempts to totally exclude coverage for mold or pollution cleanup and removal, even when resulting from a covered cause of loss, were not always successful. The companies quickly realized the most effective way to minimize their exposure was to offer the coverage, but then limit the amount they would pay (e.g., $10,000 or $25,000). These changes are occurring as revised policy forms are introduced and, most often, your only indication of any change is the revision date on the printed form. If the companies do disclose a sub-limit for mold and pollution, it is often misleadingly identified as an "Extension of Coverage," when in fact it is actually a limitation.

On renewals, similar covertly introduced coverage changes can be found in any policy for any coverage. The best way to address this problem is to request copies of any intended form changes well in advance of the renewal and negotiate needed adjustments prior to placing a renewal order. At the very least, you should review the actual delivered policies with the same vigor and detail that went into negotiating the original terms and conditions and challenge any significant changes that are detrimental to coverage. When entertaining new coverage or changing your insurance company, it is important to secure copies of the proposed policy forms for review prior to awarding coverage.

-- Carl M. Swinamer

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