Loss is not often discussed when interpreting insurance terms. But it should be. Often, when a policyholder fails to do something on time or does something wrong, insurance companies 'lawyers are heard in court arguing for a knockout punch in the policyholders' pocket – "give the policyholder no money."
Shaun Marker is a Merlin Team Lawyer based in our West Palm Beach office. He wrote a blog, Can an insurance company waive a defense based on lack of insurable interest with the following applicable ideas about why forgiveness is not tasted by courts in the construction of insurance contracts:
conditions, with which fire insurance companies are shut down the rights of the insured, and the subtle arguments which their lawyers found on them, would always prevail, these companies would be reduced almost to the sole function of obtaining premiums for little or no risk.
Forfeiture is not encouraged by law. When loss of insurance rests on significant reasons and goes to the risk, this court will maintain them … But when forgiveness is alleged for purely technical reasons and does not go to the risk, the rule is universal, that the insurance contract must be established, if it can be without violation of any principle of law. 1
Regarding claims handling, Merlin Law Group attorney Larry Bache has noted that courts will enforce exemption from contract defense, In North Carolina, the insurer may waive its right to claim forfeiture also if the waiver comes from the payment of small amounts on a claim:
In general, any document, declaration or course of action by the insurer, with knowledge of facts which constitute a cause of loss * * * which recognizes and deals with the policy still in force and leads the insured to consider himself still protected thereby will constitute an exemption from forfeiture * * * and will bind the insurer from insisting on forfeiture or set it up as a defense when sued for a subsequent loss. Such an exception can be derived from actions as well as from words. Measures by an insurance company to recognize an insurance policy as a valid and lasting agreement, and to get the insured to act in that belief and incur problems or expenses, are an exception to the condition under which the confiscation occurred.
As a general rule, in order to waive a policy provision or confiscation, there must be a prior knowledge of the circumstances, an exception is the intentional abolition of a known right and requires both knowledge of the existence of the right and an intention to waive it.  Knowledge of facts that the insurer has or should have had constitutes a message about what an investigation would have revealed and is binding on the insurer. The rule applies to insurance companies that whatever puts a person on an investigation amounts according to law to "notification" of such facts as an investigation conducted with ordinary care and understanding would have revealed.
An adjustment of a loss with knowledge of the grounds for loss has been considered as an exception to the forfeiture, in the absence of any provision to the contrary …
Thus, if the company pays certain small losses on an insurance, it waives all defenses which it has knowledge of and then disappears to rely on such defense in future losses. 2
The late policyholder's lawyer Eugene Anderson was the author of an excellent article on legal review, Draconian Forfeitures of Insurance: Commonplace, Indefensible and Unnecessary 3 arguing against cancellation of insurance benefits , but argues that courts and insurance companies often find or claim the opposite:
Loss is a rarity in a law and an insurance law ubiquity. Every year, millions, if not billions of dollars, of insurance is lost by policyholders who have not punctually met all the "conditions" included in the fine print of their insurance policies. "Failure to report an immediate accident, failure to provide accurate proof of loss, or an innocent or minor misrepresentation in an insurance policy application – to name just three common examples – can cause an insurance company to deny coverage for an policyholder's otherwise valid claims. is worse that the courts can approve this loss of insurance coverage even if the damage suffered by the insurance company from the policyholder's technical deviation is zero, or in any case is much less than the damage suffered by the policyholder and which is denied much needed insurance coverage.
The penalty is appropriate Loss is a draconian, anachronistic, archaic and deeply anti-consumer sanction.Outside the insurance law, "hornbook" measures for breach of contract no longer contain forfeitures, if they really did.Loss is mentioned in most contexts only in connection with a discussion on agreed contractual remedies, sauce about liquidated damages or specific benefits, and even then it is often described as an unenforceable sanction. A tenant may be late in paying a mortgage but still keep their home. By common law, even a dog got a bite. There is no free bite, but no opportunity to "kiss and make up" for the policyholder. When an insurance company can show the policyholder's deviation from any condition in the insurance policy, the insurance claim can be rejected …
Tomorrow, Tuesday at 2 with Chip will go over confiscation of insurance benefits, how the new Colorado Cooperation Act should be implemented in other states to prevent loss, and the extent to which different states treat this subject.
Thought for the day
Once you lose the trust of your citizens, you can never regain their respect and appreciation.
1 Appleton Iron Co. against British American Assur. Co. 46 Wis. 23, 1 N.W. 9 (Wis. 1879).
2 Gouldin v. Inter-Ocean Ins. Co. 248 NC 161, 164-65, 102 SE2d 846, 848-49 (1958).
3 Eugene R. Anderson, Richard G. Tuttle and Susannah Crego, Draconian Forfeitures of Insurance: Commonplace, Indefensible and Unncessary 65 Fordham L. Rev. 825 (1996).