Claims Commandment Number IV Thou Shall Understand The Policy
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In this the fourth of Fifteen Claims Commandments we deal with the need for every insurance claims professional to read and understand the terms and conditions of the policy that made promises to an insured who is presenting a claim.
Insurance Policies are Contracts
Insurance policies are contracts. To understand insurance claims the adjuster must understand how all contracts, and specifically insurance contracts, are interpreted. Rules of contract interpretation have developed over the last 300 years and are applied by courts with the intent to fulfill the desires of all parties to the contract.
People and judges who are not conversant in insurance and the interpretation of insurance contracts believe that the insurance policy is difficult to read and understand. They are wrong. However, as one court said in Delancy v. Rockingham Farmers Mutual, 52 N.H. 581 (1873):
This [policy], if read by an ordinary man, would be an inexplicable riddle, a mere flood of darkness and confusion … should some extremely eccentric person attempt to examine the involved and intricate net in which he was to be entangled, he would find that it is printed in such small type and in lines so long and crowded as to make the perusal of the document physically difficult, painful and possibly injurious.
Since 1873 insurance policies are printed in large print and in language, by statute, that anyone with a fourth grade education can understand. Still, there seem to regularly be disputes taken to court about the meaning of terms, conditions and limitations of the policy of insurance.
The following rules govern the construction of contracts of insurance:
If the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed at the time of making it, that the promisee understood it.
If a written contract is so worded that it can be given a definite or certain legal meaning, then it is not ambiguous. However, if the language of a policy or contract is subject to two or more reasonable interpretations, it is ambiguous.
When a policy is interpreted, the provisions of an endorsement control the interpretation over the body or declarations of a policy when the two are in conflict.
For example, if the language written to limit an insurer’s liability to the appraised value appears on the declarations page, while the valuation condition that provides for an actual cash value adjustment appears on a form endorsed to the contract, the endorsement’s language would control the interpretation of the contradictory language of the policy.
However, the fact that the two sentences could have been written more clearly, did not mean that they were ambiguous.
Reasonable Expectations
Consider the reasonable expectations of the insured but, when doing so, include the understanding that every insurer is presumed to be acquainted with the practice of the trade that the insurer insures.
More than 150 years ago the US Supreme Court in Hazard’s Administrator v. New England Marine Insurance Co., 33 U.S. 557 (1834) adopted the rule. The Supreme Court concluded that “no injustice is done if insurers are presumed to know their insureds’ industry because it is part of their ordinary business.”
In MacKinnon v. Truck Ins. Exch., 31 Cal.4th 635 (2003), the California Supreme Court first stated the primacy of the “reasonable expectations” test when interpreting insurance policies. It decided that the reasonable expectations of the insured required coverage to exist for an ordinary act of negligence even if it involved pollutants.
Where the language of the policy is clear, the language must be read accordingly, and where it is not, it must be read in the sense that satisfies the hypothetical insured’s objectively reasonable expectations.
If you find the term is clear and unambiguous there will be no need to apply the reasonable expectations test.
If you find any ambiguity, or determine the insured should be paid, the application of the reasonable expectations test will give a court the ability to construe the policy against the insurer and in favor of payment of the insured’s claim.
The Plain Meaning Test
Most states will apply the plain meaning test.
Long-established insurance law supports the conclusion that insurers are presumed to know and be bound by the meaning of the terms used and customs adopted in their insureds’ industries. Insurers, and insurance claims professionals, faced with a need to understand and apply the wording of a policy of insurance must now conduct their investigation to include:
a detailed investigation of the facts of the loss and policy acquisition;
a determination of the expectations of the insured and the insurer at the time the policy was acquired;
a determination of the purposes for which the policy was acquired; and
an examination of all communications between the insurer and the insured or their representatives.
To conclude a thorough investigation the insurer must at least conduct a detailed interview of the insured, the claimants, the brokers, and the underwriters. When there is a dispute over the meaning of common terms, the court will often find it necessary to inform upon the understanding of persons in the particular business insured so that the judge must consult the opinions of experts.
Expert testimony can be helpful in establishing that the insured’s or the insurer’s interpretation of the term at issue is different from that advanced by the other was reasonable. In California, this may be sufficient for a party to prevail because although insureds are treated differently so that even if the insurer’s interpretation is considered reasonable, it would still not prevail, for in order to do so it would have to establish that its interpretation is the only reasonable one.
An insurance claims professional can never make, or recommend, a decision with regard to an insurance claim until he or she has read the entire policy as it relates to a loss, interpret the policy wordings in accordance with the rules of interpretation stated above, conduct a complete and thorough investigation to determine the reasonable expectations of the insured, and if unable to decide to seek the advice of competent coverage counsel.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected] and receive videos limited to subscribers of Excellence in Claims Handling at locals.com
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Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library
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Defendant American National filed a motion for summary judgment because Plaintiff is not a named or third-party beneficiary of the Policy. Defendant contends that because Plaintiff is not covered by the Policy, Plaintiff cannot prove that Defendant breached the Policy or demonstrated bad faith under La. R.S. 22:1973 and 22:1892. In support of this contention, Defendant argued that the Policy only covers the “Named Insured/Mortgagee” of the property, Magee Holdings, LLC, and that the Policy does not name Plaintiff as an insured or a third-party beneficiary.
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Lawyers Present & Argue Motions in Limine to Control Trial Excess
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In United States Of America v. Scharmaine Lawson Baker, Criminal Action No. 24-99, USDC, E.D. Louisiana (July 7, 2025) Scharmaine Lawson Baker was charged with six counts of health care fraud. She pled not guilty, and her trial was scheduled.
BACKGROUND
Government’s Omnibus Motion in Limine
The Government filed an omnibus motion in limine which included several requests to exclude certain types of evidence and arguments.
Exclusion of Evidence and Argument Related to Specific Instances of “Good Deeds” and “Law-Abidingness”
The Government argued that such evidence is irrelevant and improper character evidence.
The Court granted the motion, stating that the defendant’s character is not an essential element of the charges.
Testimony About Defendant’s Own ...
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In Gabaryaahla Israel and Akiva Israel, Beneficiaries v. Caliber Home Loans, Inc., et al., No. CIV-24-1255-D, United States District Court, W.D. Oklahoma (July 11, 2025) Wells Fargo Bank, N.A.’s Moved to Dismiss Plaintiffs’ Complaint for Fraud, Quiet Title, Injunctive Relief, Breach of Contract, Declaratory Judgment, Damages, Racketeer Influenced Corrupt Organizations Act (RICO) Violations, and Trover and Midfirst Bank’s Rule 12(b)(6) Motion to Dismiss.
Plaintiffs, who are self-represented, failed to respond to the motions to dismiss within 21 days as required by LCvR7.1(g) (establishing a 21-day deadline, and noting that any motion that is not opposed within 21 days may, in the discretion of the court, be deemed confessed.
BACKGROUND:
The plaintiffs brought this action against the ...
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CASE OVERVIEW
In Richard Bernier v. State Farm Mutual Automobile Insurance Company, No. 4:24-cv-00002-GMS, USDC, D. Alaska (May 28, 2025) Richard Bernier made claim under the underinsured motorist (UIM) coverage provided in his State Farm policy, was not satisfied with State Farm's offer and sued. Both parties tried to win by filing motions for summary judgment.
FACTS
Bernier was involved in an auto accident on November 18, 2020, and sought the maximum available UIM coverage under his policy, which was $50,000. State Farm initially offered him $31,342.36, which did not include prejudgment interest or attorney fees.
Prior to trial Bernier had three remaining claims against State Farm:
1. negligent and reckless claims handling;
2. violation of covenant of good faith and fair dealing; and
3. award of punitive damages.
Both Bernier and State Farm dispositive motions before ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
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Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
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Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
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Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...