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
Breach of Material Condition for Monitored Fire Alarm Voids Coverage
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No Monitored Fire Alarm: No Coverage
Post 5191
In Northfield Insurance Co. v. Michigan 32, LLC, No. 24-CV-12822, United States District Court, E.D. Michigan, Southern Division (September 10, 2025) Defendant Michigan 32, LLC’s (MI 32) moved the court for reconsideration of the Court’s Opinion and Order granting summary judgment to Plaintiff Northfield Insurance Company (Northfield).
The matter arose out of a commercial insurance coverage dispute wherein Northfield denied MI 32’s fire loss claim. The Court granted summary judgment in favor of Northfield on its Declaratory Judgment action.
THE ORIGINAL DECISION
The Protective Safeguard Endorsement
The Court held that MI 32’s admitted failure to comply with its Policy’s Protective Safeguard Endorsement...
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
Post 5190
ZIFL Volume 29, Issue 18
See the full video at https://rumble.com/v6yuis6-zalmas-insurance-fraud-letter-september-15-2025.html and at https://youtu.be/64CobaRmzd0, at https://zalma.com/blog, and https://zalma.com/blog/wp-content/uploads/2025/08/ZIFL-09-01-2025-1.pdf.
Posted on September 15, 2025 by Barry Zalma
ZIFL Volume 29, Issue 18
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
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Post 5190
See the full video at https://rumble.com/v6yuis6-zalmas-insurance-fraud-letter-september-15-2025.html and at https://youtu.be/64CobaRmzd0
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/
The Contents of the September 15, 2025 Issue of ZIFL Includes:
...
Shotgun Murder of Wife in Africa Not an Accident
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In United States Of America v. Lawrence Rudolph, National Association Of Criminal Defense Lawyers, Amicus Curiae, No. 23-1278, United States Court of Appeals, Tenth Circuit (September 8, 2025) affirmed his conviction.
The United States Court of Appeals, Tenth Circuit’s opined on the appeal of Lawrence Rudolph, convicted for the foreign murder of his wife Bianca Rudolph and related mail fraud charges.
BACKGROUND AND CASE OVERVIEW
Lawrence Rudolph was tried and convicted for the fatal shooting of his wife during a hunting trip in Zambia. He was sentenced to life imprisonment for foreign murder and concurrent sentences for mail fraud related to his fraudulent procurement of life insurance proceeds following Bianca’s death. The government alleged that Rudolph intentionally killed Bianca to collect approximately $4.8 million from her life ...
How a Need for Profit Led Health Care Providers to Crime
Post 5185
Posted on September 8, 2025 by Barry Zalma
See the full video at https://lnkd.in/gePN7rjm and at https://lnkd.in/gzPwr-9q
This is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.
The Dishonest Chiropractor/Physician
How a Need for Profit Led Health Care Providers to Crime
See the full video at and at
This is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.
How Elderly Doctors Fund their ...
How a Need for Profit Led Health Care Providers to Crime
Post 5185
Posted on September 8, 2025 by Barry Zalma
See the full video at https://lnkd.in/gePN7rjm and at https://lnkd.in/gzPwr-9q
This is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.
The Dishonest Chiropractor/Physician
How a Need for Profit Led Health Care Providers to Crime
See the full video at and at
This is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.
How Elderly Doctors Fund their ...
Barry Zalma: Insurance Claims Expert Witness
Posted on September 3, 2025 by Barry Zalma
The Need for a Claims Handling Expert to Defend or Prove a Tort of Bad Faith Suit
© 2025 Barry Zalma, Esq., CFE
When I finished my three year enlistment in the US Army as a Special Agent of US Army Intelligence in 1967, I sought employment where I could use the investigative skills I learned in the Army. After some searching I was hired as a claims trainee by the Fireman’s Fund American Insurance Company. For five years, while attending law school at night while working full time as an insurance adjuster I became familiar with every aspect of the commercial insurance industry.
On January 2, 1972 I was admitted to the California Bar. I practiced law, specializing in insurance claims, insurance coverage and defense of claims against people insured and defense of insurance companies sued for breach of contract and breach of the implied covenant of good faith and fair dealing. After 45 years as an active lawyer, I asked that my license to practice law be declared inactive ...