What Constitutes an Insuring Agreement?
Understanding Insuring Agreements: Key Components and Implications
Insuring agreements are part of the sine qua non of an insurance contract. Importantly, an insuring agreement is at the heart of an insurer’s duty to defend its insured. Conversely, analysis of the insuring agreement may determine that the insurer has no duty to defend.
An insurance contract typically contains an insuring agreement, a description of the risks the insurance policy covers (i.e., losses that can trigger recovery), a means of defining the nature and extent of that coverage (e.g . , who can recover under what circumstances, who is covered under the policy), and exclusions, which are generally any limitations or restrictions on the insuring agreements. The insuring agreement itself is broad but is restricted by express policy exclusions and limitations. For example, a first-party property policy may state that the insurer "insures all risks to the insured’s property, except for losses resulting from earthquake, flood, and mudslide." Together, the insuring agreement and the exclusions create the scope of the coverage and, ultimately, the obligations the insurer and insured owe to one another.
Essential Elements of the Insuring Agreement
A policyholder should be mindful of the simple fact that coverage is only provided for the facts shown in the "declaration of coverage." The declaration of coverage usually provides who (being the persons to be covered), what (being the limitation of the extent of the coverage), where (the geographical scope of the coverage), and how (which relates to the manner the liability is contemplated). For example, a certificate of liability issued to a business may cover one location of the business for a specific type of incident, but may not provide coverage for any additional locations or other types of incidents unless specifically endorsed to do so. This limitation is important, because at a minimum, policyholders should strive to provide for coverage over as many locations and for as many types of incidents as possible. The insuring agreement also sets forth the obligations of the insurer. It is important to look at what type of defense obligations are provided – or not – in the policy form itself. For example, many commercial general liability policies provide explicitly for defense of the policyholder for covered claims and incidents. The other contract component to focus on in the insuring agreement is the conditions to coverage, including what requirements are imposed upon the insured. A mere lack of compliance with policy requirements may result in a denial of coverage. Accordingly, it is important to understand the requirements contained in policies if an insured wants to maximize the opportunity for coverage.
Different Types of Insuring Agreements
Insuring agreements can be expressed in a number of ways. The language chosen depends on the type of insurance, overall coverage provided and underwriting experience. Common insurance contracts contain insurance agreements that include references to "perils insured against," "damages," "harms," "liabilities," and claims. The language used typically makes clear that which is covered under the policy and provides a limitation that identifies exclusions that apply. For example, in the context of life insurance-an insurance policy that pays out a sum of money upon the death of the insured or after a specified period of time-the most common insuring agreement takes the following form: ABC Insurer will pay to whom the parties mutually agree, subject to the following provisions, the basic sum of $50,000 if you die while this policy is in force. As one can see, if the insured has paid premiums and the insured is deceased, the life insurer has a duty to pay. Obviously, there are other limitations like a suicide exclusion, among others. With an automobile insurance policy, which catagorizes various types of coverage, with most policies containing automobile liability coverage, the policyholder purchases automobile liability coverage just in case the policyholder is found legally responsible for causing harm to another. The standard insuring agreement for automobile liability coverage reads more or less like this: ABC Insurer agrees to pay damages in excess of the limits of liability stated in the declarations for which an insured becomes legally responsible because of bodily injury to others or damage to property caused by accident arising out of the ownership, maintenance, or use of your car or a non-owned car. Automobile insurance generally contains multiple insuring agreements, including insuring agreements for uninsured motorist benefits, scheduled personal property benefits and medical payments for injuries to passengers. For health insurance, the insuring agreement is typically worded as follows: ABC Insurer will pay only those charges for care and treatment of the illness or injury named above. This care and treatment must be given by licensed member of the medical profession, must be necessary at the time it is given, and must be given according to generally accepted medical standards. Property insurance policies usually contain three insuring agreements: named perils coverage, all risk or special coverage. Generally, any policy that provides named peril coverage lists the perils that are insured against. Automobiles and homes are good examples of named peril coverage. For an automobile, for example, the named perils are typically fire, theft, vandalism and collision. For a home, named perils coverage usually insures against: In contrast, coverage under an all risk or special coverage is a policy insuring use of a new home or/or new automobiles. The insuring agreement there (sometimes called a "coverage grant") specifically states that the insurer "insures against all risks of physical loss to property" except for loss due to certain exclusions contained in the policy.
The Insuring Agreement’s Exclusions and Limitations
Companies often go too far in drafting insuring agreements so that they include exclusions for matters on which they normally insure. The purpose of exclusions is to clearly preclude coverage for certain situations that an insurer does not want to cover. For example, an occurrence-based CGL policy commonly excludes coverage for bodily injury, personal injury, or property damage that occurred prior to the policy period. If a company wrote an occurrence-based policy with no such exclusion, potentially any bodily injury or property damage could be covered if it occurred up to and potentially 100 years in the future. Policy exclusions are typically broken up into four categories. The exclusions may be what are really known as exceptions or limitations, in that they may limit coverage under some circumstances but not eliminate it entirely. In other words, sometimes the exclusions may create an exception to the exclusions themselves and create a coverage grant that would be otherwise absent. For instance, courts in many jurisdictions have held that the exclusion excluding coverage for contract claims or claims arising out of an insured’s breach of contract does not apply if the claimant’s injuries are caused by a covered occurrence, such as negligent conduct that causes personal injury to its employees. To exaggerate the point, in many if not most instances an exception to an exclusion has been found to create coverage in some form. Accordingly, it is vitally important to pay close attention to the limitations and exceptions language in any exclusions, to determine if this exclusion is intended to prevent coverage or whether it is a technical term that is construed to expand the scope of coverage. Examples of exclusions include: I am not sure that the scope of exclusions and the exceptions discussed above, particularly the exceptions to exclusions, lend themselves to valid generalizations that hold true for all jurisdictions and all policies. Prospective policyholders who are attempting to draft an insuring agreement are well advised to consult with experienced insurance coverage counsel.
How to Analyze the Insuring Agreement
Insuring agreements are clauses contained in insurance policies that identify the risks of loss or exposures assumed by the insurer under a policy. To determine the rights and obligations of parties to an insurance policy and the scope of coverage, courts will look first to the insuring agreement. The intent of the parties is gleaned from the language of the insuring agreement. Accordingly, the insuring agreement of an insurance policy should be read and interpreted like any other legal contract. To interpret an insurance policy , courts apply standard rules of contract interpretation. Among the most basic of these rules is the requirement that unambiguous contract provisions must be given their plain and ordinary meaning. If the policy language is ambiguous, then the court will consider extrinsic evidence to determine the intent of the parties. In determining whether policy language is ambiguous, however, the court may not rely on expert opinions, depositions or the parties’ own conduct. Even if the policy contains a reasonable construction of the provision at issue (along with an unreasonable one), that does not make it ambiguous. It is only when the contract is reasonably susceptible to more than one interpretation that an ambiguity exists.
The Insuring Agreement’s Considerations for Claims
The insuring agreement found in the insurance policy applies to insurance claims as well. This means that if a dispute arises over the claim, the duty of the insurer to defend or indemnify ultimately turns on the terms of this agreement. The obligation to defend will only exist if the allegations in the complaint are covered under the policy. Further explanation of this proposition can be found in the blog post "No Duty to Defend for Uncovered Claims in Declaratory Judgment Action." If allegations are covered, then there is a duty to defend. This obligation exists even if the allegation lacks merit and even if the allegations of the complaint are not properly pled, meaning that the plaintiff chose to include extraneous allegations which do not affect the cause of action and/or the relief sought. The carrier has a duty to provide a defense (not simply pay the defense attorney) where there is a possibility that the allegations fall within the coverage.
Other requirements of the insuring agreement include that the insured notify the carrier of a claim in a timely manner, report the occurrence or loss and cooperate with the carrier’s investigation. Policyholders must comply with the provision in their policy requiring that they provide their insurance company with notice of a claim. Whether the notice was timely will be a question for a court to decide. If there is any indication that failure to comply with this provision may jeopardize a claim, the insured should immediately send to the carrier the notice of the occurrence under law and the policy.
Insuring Agreement Analysis for Coverage and Disputes
The potential for legal issues arising from insuring agreements comes from the practical matter of what happens when the insurer fails to pay an insured following a claim. While the general principle of upholding the bargain made in an insurance contract between the insurer and insured must always be considered, courts must also interpret the language of the contract and interpret the intent of the parties.
Disputes relating to insuring agreements can range from whether the terms of the agreement are met by one party or the other to requesting that a court interpret the precise nature of the commitments made by the parties. While wild disagreements tend to attract headlines in the media, whereby consumers are left with a bad taste of how some insurers treat their insureds (or vice versa) , more often than not all aspects of the insuring agreement are not clearly understood by both parties with the result being a dispute over the meaning of a particular term or phrase in the contract. While some judges are willing to adopt an exact or literal interpretation of the terms of an insuring agreement, others will consider the broader context in which the parties have contracted and, in some instances, overlook minor failures in technical aspects of the agreement if they find there is no cause for concern that such actions will prejudice future performance of either party under the agreement.
In some cases, parties may be supported by legislation when looking to enforce their rights under an insuring agreement; however, it is up to the courts to balance the interests of all parties involved in a given dispute and consider the consequences of interpreting certain terms in a way that is contrary to the expressed intent of the parties.