Expert Advice When You Need It Most

How Courts Will Review Your Insurance Policy

Written by: Anthony K. Murdock

Reputation Level 8

Posted about 3 years ago. 0 helpful votes, 0 comments

Save

Share with:

Interpreted from the Point of View of a Reasonable Insured

Judicial interpretation of an insurance policy seeks to give effect to the intent of the contracting parties. Insurance policies are construed as they would be understood by a reasonable person in the position of the insured. To that end, whatever ambiguity exists in a contract is resolved in favor of the insured. A term is ambiguous if it is susceptible to more than one reasonable interpretation.

Construed Against the Insurance Company.

The Insured gets the benefit of every reasonable inference. This is not to say that a court will find there is coverage if there is none, but if the policy could reasonably read to provide coverage, the insured will get the benefit.

Shifting the Burden of Proof.

The insured has the initial burden of proving that the loss falls within the policy’s broad grant of coverage. In other words, you have to show that you have a loss or injury that is defined by the policy, or there is an occurrence. The burden then shifts to the insurer to prove that an exclusion precludes coverage for the loss. If there is an exclusion that may apply, the burden shifts back to the Insured to prove an exception to the exclusion applies.

Duty to Defend

The first three steps are the same for all policy interpretation, regardless if there is a property damage claim or the insured is sued for negligence and the court is making the determination if the insurance company has to provide a defense. An Insurer's duty to defend is established as follows: Courts apply the “four corners” test in determining whether a duty to defend exists. To apply this test, Courts examine two documents: (1) the complaint; and (2) the insurance policy. If the the Complaint states a cause of action that would arguably fall within the policy, there is coverage. Like all insurance policies, courts construe these documents as they would be understood by a reasonable person in the insured's position. If there is any doubt as to whether the complaint alleges facts that would give rise to liability under the policy, then the duty to defend exists. Courts do not consider any evidence outside of the complaint and the policy is considered.

What to expect when the Insurance Company Disputes its Duty to Defend

Often when an individual gets sued and tenders the claim to his insurance company the insurer will appoint merits defense counsel to protect the insured interests. When an insurance company disputes that it has a duty to defend the Insurance company will also appoint coverage counsel. The Coverage counsel will usually make an appearance on behalf of the insurance company and the merits counsel makes an appearance on behalf of the insured. While Coverage Counsel may appear to be aligned with the insured's counsel, they'll both sit at the same table they are not the insured's friend. The Coverage counsel will attempt to get the insurance company out of the case leaving the insured to pay for all the damage (you'll lose the payment for the merit's defense if this happens). To get the insurance company out of the case, coverage counsel will attempt to bifurcate the case so that coverage is decided apart from the merits.