Welcome to March, which is National Ethics Month, as sponsored by the CPCU Society and other fine insurance organizations. A while back, an alert reader sent me an intriguing e-mail message regarding an ethics issue, and this is just the occasion to discuss it. At the core of his conundrum is his observation that some insurance companies deny claims based on legal precedents in which courts have obviously misinterpreted policy language, especially in cases involving the CGL policy. The reader noted that it was not merely his opinion that the verdicts in question were flawed–industry experts had published articles about them in various journals, discussing what went wrong, and courts in other states later rejected the rulings. Still, he said, insurers use such obviously erroneous judgments to justify denying their insureds' claims.

“Claims adjusters have told me that, regardless of what I think or how other states' courts have dealt with such matters, once a court rules on the meaning of a policy's language, that's the final word,” the reader reported. “Such reasoning, in my view, is nonsense. While statutory law may vary by state, the insurance contracts used in most states are identical or nearly so. And while statutory law may trump policy language, case law certainly does not. When a court fouls up a ruling, the insurers in that state should not rely upon the ruling to deny future claims.”

The reader said he suspects that, in many cases, insurers who argue against paying a claim based on policy-language rulings in one particular state also argue the opposite in other states when subrogating against other insurers. He added that a carrier's assertion that a contract's wording means two completely different things in two different states is “the height of hypocrisy and a violation of ethical standards.” Unfortunately, based upon the e-mails I receive and the tales I hear in class, the reader is not alone in either his observation of claims-handling duplicity or his distaste for such carrier practices.