How many readers of this blog are professional risk managers who have studied the risks we face? Get. Liberty Mutual’s new slogan seems common sense and is catchy. It is misleading because it undermines the role of professional insurance agents and risk managers. Most of us do not fully understand the true risks we face, and the reason the most costly risks result in expensive premiums is because they are the biggest risks we face.
I thought of Liberty Mutual’s advertising campaign when I was researching how a church in Florida decided it was economical to drop the “windstorm named” insurance from its policy shortly before two hurricanes damaged it. The crazy thing about the case is that after giving a premium discount for the removal of “the named windstorm,”; the insurer did not issue a policy that excluded that peril.
The point of the policyholder’s motion for summary judgment was that the hurricane claims were denied and that the policy had no exclusion that applied. Indeed, all of the defendant insurers’ adjusters conceded that the policy and its endorsements contained no language that would exclude the loss from hurricane damage.
The insurer’s motion for summary judgment contained the important point that the policyholder asked how much cheaper it would be to remove hurricane damage from the policy and accepted a reduced premium in exchange for a policy that provided no coverage for a “named windstorm.” It also noted that at the time of the first amendment, a recommendation was issued that removed “named windstorm” from coverage.
When a policyholder chooses to purchase low-cost Florida insurance that will provide a huge coverage gap to the most important coverage in Florida, I bet the conversation often begins as outlined in the insurer’s motion for summary judgment:
Shiloh’s insurance agent contacted Burns & Wilcox, the insurance’s broker, regarding the removal of the named windstorm cover, stating, “[T]he insured has contacted me regarding this policy. They would like to know what the premium would be without hurricane coverage. . . please help me with this.
The church asked for and received cheap insurance. But the renewal policy did not reflect the change! What happens?
The insurance company argued two points to win:
- The application indicated that hurricane coverage was not requested is part of the policy.
- The policy should be reformed to meet the intentions of the policy.
The district court analyzed the situation as follows:1
The two policies in effect when the plaintiff’s building was damaged alone do not explicitly say anything about damage resulting from a named windstorm. (See general doc. no. 25-10, 25-14). But Florida law instructs that ‘[e]the contract of insurance itself shall be construed in accordance with all its terms and conditions set forth in the policy and as augmented, extended or modified by any application thereto or any rider or endorsement thereto.’ Fla. Stat. § 627.419(1)…see State Farm Mut. Car. ins. Co. v. Mallard, 548 So. 2d 733, 735 (Fla. 3d DCA 1989) (‘Where the policy is “augmented, expanded, or modified” by inconsistent terms or conditions in the application, the inconsistent provisions are not disregarded. Rather, the policy is interpreted with due regard to those provisions.”). In fact, documents obtained during the application ‘bec[o]me part of the insurance,” and “the insurer is entitled to rely on the representations made by an applicant in the application for insurance.”…
Using this standard to evaluate the policies at issue, the undisputed facts make clear that named windstorm coverage was excluded from each of Plaintiff’s policies from July 2015 onward….
… the reduced premium earned by the claimant as a result of the lapse of the named windstorm coverage was carried over to the subsequent policies. Thus, the plaintiff continued to receive the benefit of its July 2015 settlement with the defendant: lower premiums in exchange for reduced coverage. Plaintiff’s counterargument is based on the fact that the policy in effect during the subject hurricanes did not itself provide an exception for named windstorms. But to construe those policies to include coverage for named windstorms when the parties had expressly negotiated to exclude such coverage—absent any subsequent agreement to the contrary—would be a “strained, forced or unrealistic construction” of the policies….
The bottom line of this case is that the intention of the party at the time of purchase is important. Here, it seemed clear that the policyholder wanted a policy without hurricane coverage to lower the premium.
In this case, the policyholder did not purchase the insurance it needed. But it got the coverage it paid for.
There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who only consider price are this man’s legal prey.
– John Ruskin
1 Shiloh Christian Center v. Aspen Specialty Ins. Co.No. 6:20-cv-01774 (MD Fla. May 9, 2022).