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Policy Issues: The flaw in using flawed opinions to deny claims

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

By Chris Amrhein | Updated on February 28, 2006

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.”

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