When an event happens in your business or personal life that causes damage to you, to another person, or to another business, it is always wise to seek and obtain good legal counsel. However, before you meet with your attorney, you should locate and review your insurance policy or policies that may pertain to the insurable event.
An insurance policy is a contract and is interpreted by the legal rules governing contracts. Traditionally, an insurance policy is a contract of indemnity. The insured promises to pay the insurance company an amount of money called a premium and the insurance company promises to pay for a loss suffered by the insured. Your first question should be, “What is my coverage?”, or put another way, what are the losses the insurance company has promised to pay for?
The courts will always look to the language of the insurance policy for the answer to what is and what is not covered. A particular insurable event may be covered by more than one insurance policy, for example both a comprehensive business policy and an automobile liability policy. Your lawyer and your insurance agent will want to know all of the insurance policies you have that may possibly relate to the insurable event.
In addition to the covered events causing loss, your insurance policy will also state the limits of coverage the insurance company has promised to pay. Depending upon the size of your premium, the insurance company promises to pay for damages caused by you only up to a certain amount. Because your circumstances change over time, be sure to check to see if the new event was something covered at the time the policy was made. For example, a business may acquire new equipment, or a homeowner a new possession, that may or may not be covered by the original policy. It is a good idea to periodically sit down with your insurance agent to review your insurance needs.
Almost every insurance policy contains five parts, which may be described differently from policy to policy. The five parts are the declarations, definitions, insuring agreement(s), exclusions, and conditions. Many policies also contain a sixth part called endorsements.
The limits of coverage are usually contained on a cover page to the insurance policy called a “declarations page”. The “dec page” also contains names and address information, the policy dates, premium information, a summary description of the coverage provided, and depending on the type of insurance, valuations of the objects being insured. The dec page will also identify whether the policy is a “claims made” policy, providing coverage when a claim is made to the insurance company during the policy period, regardless of when the insurable event took place.
The definitions section contains what might appear to be common words but which may have special meaning within the context of the insurance policy. These words are usually in bold print or in quotation marks. Because definitions can restrict coverage, it is important to know what these words mean in the insurance policy, regardless of their otherwise common meaning. For example, the common word “you” could mean you, a family member, an employee, a business partner, or a number of other persons whose actions may or may not be insured.
The insuring agreement(s) specify what loss the insurance company has promised to pay for. Many policies contain the explicit words “Insuring Agreements” or contain with the phrase “we will pay…” You should always think of an insurance policy as starting with the general declaration of what the insurance company is obligating itself to do in the insuring agreements. The remainder of the policy restricts, limits, or excludes items from that general declaration. Commercial general liability policies usually contain separate insuring agreements for each covered area.
Under the exclusions section, items that are not covered by the policy are excluded from coverage. Be careful, an exclusion can be anywhere in the policy, not just in the section entitled “exclusions”. Because ambiguities in insurance contracts are interpreted against the insurance company who drafted them, the language of exclusions can be very detailed. Know what exclusions apply to you or your business.
Conditions impose certain requirements on the insured that trigger the obligations of the insurance company. Premiums have to be timely paid, a loss has to be reported promptly, and the insured must take action to limit the loss. These are some examples of conditions in insurance contracts.
The insured and the insurance company may agree to add coverage, exclude coverage, or revise a definition. An endorsement modifies the coverage in the original policy. Sometime an endorsement is entered into at the same time as the original policy, so be sure that you have all insurance paperwork together when you first meet with your attorney.
Finally, many liability policies will contain a separate provision that obligates the insurance company to hire an attorney, at the expense of the insurance company, to defend you in court in the event you are sued. Even if the insurance company disputes coverage of the claim, they may still be obligated to defend you under a “reservation of rights” letter, leaving the question of indemnity for the loss separate from your liability for the claim.
So before you call your lawyer, locate and review your insurance policies and bring copies with you to the attorney.
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