People purchase insurance policies for two basic purposes. The first purpose is to protect them in the event that they suffer a loss to their person or property. If an insured suffers injury to his person or property and the loss is covered under the terms of a policy of insurance; this is what is commonly known as First Party Coverage.
The second purpose of a policy of insurance would be to protect an insured from losses suffered by others. If an insured causes damage to property or persons, under the terms of the insurance contract the carrier agrees to defend and indemnify its insured for such loss.
This coverage is commonly referred to as Third Party Coverage. Most policies of liability insurance whether they are commercial, homeowner, or automobile, provide both types of coverages.
In reviewing disputes between the insurance carrier and its insures, the attorney must have an understanding of not only the language within the insurance contract, but also the requirements mandated by insurance statutes and regulations.
First and foremost, insurance policies are contracts. In construing insurance policies, the Pennsylvania courts have long applied contract standards to determine whether there is or is not coverage in a given situation. The fact that most people do not read their policy of insurance is not important. What is important is whether or not the language within the policy is clear and unambiguous.
Most Disputes Involve Interpretation of Policy Language
See Standard Venetian Blind Co. v. American Empire Insurance Company, 503 Pa. 300, 469 A.2d 563 (1983). You'll find that most disputes between an insurance company and a policyholder involve the interpretation of the language of the policy.
The insured will believe there is coverage for a certain loss while the insurance carrier will point to various exclusions within the contract language, which allegedly preclude such coverage. Therefore, it is essential that the attorney fully review the policy as well all exclusions to determine as well as possible the plain meaning within the contract.
The Pennsylvania Supreme Court in Bateman v. Motorists Mutual Insurance Co., 527 Pa. 241, 590 A.2d 281 (1991) set forth the standard for reviewing policy language. The Court states:
[R]eview is aimed at ascertaining the intent of the parties as manifested by the language of the written instrument. Where the provision of the policy is ambiguous, the policy provision is construed in favor of the insured and against the insurer, the drafter of the instrument. If the effect of the language is clear and unambiguous, we give effect to the language of the contract. Bateman v. Motorists Mutual Insurance Co., 590 A.2d at 283; See also Steele v. Satesman Ins. Co., 530 Pa. 190, 607 A.2d 742 (1992).
The contract is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense. Hutchinson v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385 (1986) at 390.
Denial Letter Will Set Forth Disputed Items
In reviewing a dispute between the insurance carrier and a policyholder, the attorney is not in a vacuum. Rather, most disputes arise out of a claim or request for payment of benefits whether it is for property damage or personal injury.
The insurance company will have reviewed the claim and denied payment. In its denial, the carrier will set forth, in writing, the reasons for the denial.
Generally, the company will cite failure on the part of the insured to supply certain information in the application process or describe one or more exclusions within the contract, which preclude coverage.The attorney knows based upon the letter which parts or portions of the contract are controlling.
Review Policy and Insurance Regulations
The next step is to review not only the contract itself but the insurance statutes and regulations, which govern this type of insurance. Aside from determining whether there is an ambiguity within the insurance contract, matters of public policy must also be addressed.
If the law requires certain coverage, and the insurance company attempts to limit that coverage through exclusions or definitions, it is the law, which controls. It is well settled that the insurance laws of Pennsylvania are incorporated into and become part of every insurance policy sold in the Commonwealth. See Schware v. Home Life Ins. Co., 134 Pa. Super.53, 3 A2d 949 (1939); Neel v. Williams, 158 Pa. Super.478, 45 A.2d 375 (1946). This universal rule is set forth in Couch on Insurance, which provides:
[C]ontracts of insurance...are presumed to have been made with reference to the law of the land, including the statutory laws which are enforced and are applicable and such statutes, as well as settled judicial constructions thereof, enter into and become part of the contract as much as if they were actually incorporated therein. Therefore, if a contract for insurance fails to provide the insurance coverage mandated by law, it is for the Courts to reform the contract to provide those benefits. See Johnson v. Concord Mutual Ins. Co., 450 Pa. 614, 300 A2d 61 (1973).
Couch on Insurance, 2d ' 13:6.
It is within these gray areas of ambiguity, public policy and statutory construction, which lead to a dispute, which forms the basis of most insurance litigation. It is the job of the attorney to sort through the policy, statutes and case law to provide the expertise necessary to resolve these disputes.
It is unfair to subject someone to the time and expense of litigation when the policy language is clear and there are no statutes, regulations or case law, which would support or justify litigation. It is a heavy burden that falls upon the attorney handling an insurance dispute.
Environmental Coverage
The effects of pollution in our atmosphere and environment have become a hot topic not only in the media but also in litigation. Companies involved in the storage of chemicals or petroleum suffer the effects of oil spills and ground water contamination. Up until recently, most companies were not aware or took a cavalier approach to environmental hazards associated with business.
When damage to property occurred as a result of spills and seepage, most companies looked to their commercial liability policies for some relief to pay for the damages. Most general liability policies purchased by companies allow for payment of property damage claims as a result of certain occurrences whether they are fire, explosion or some other catastrophe. With regard to pollution, most carriers have added to their policies an exclusion, which in one form or another excludes coverage for long-term environmental damages.
Most policies of general liability exclude coverage as follows:
[T]o bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.
Pennsylvania courts have upheld the language in the policy, which excludes coverage for long-term pollution. See O'Brien Energy v. American Employers, 427 Pa. Super. 456, 629 A2d. 957 (1993). The question with regard to the discharge of pollutants is whether the onset is sudden or the result of a long-term leakage of the contaminant. Other polices allow coverage for damage during the policy period. How does one know when a leak first appears?
Fire Insurance
The term fire insurance is a first party coverage found in most homeowner's and commercial property policies covering property damage as a result of fire as well as a number of other calamities.
Fire insurance involves two separate items of property. The first item of property damage is the damage to the building or structure, which is insured.
The second item of coverage involves the contents within the structure. In the commercial contract of insurance, additional coverage may be included for loss of business and income. Additional coverage may be allowed for jewelry as well as other items of value requiring separate endorsements.
In reviewing a fire insurance policy, the first step is to see the declaration page. The declaration page of a policy of insurance is a page showing the amount of coverage provided and the items covered under the policy. For instance, the value of the building may be $150,000.00 while the coverage for the contents of the building is $50,000.00.
This does not mean that after a fire, where there is a total loss that the insured will receive the full amount of coverage. Rather, the amounts listed on the declaration page merely show the total amount of benefits that will be paid in event of a loss.
The insured will be required to submit a proof of loss establishing the value of the building as well as an itemization of the lost contents. Payment is then made based upon the type of policy issued by the carrier. An actual value policy will pay to the insured the value of the property at the time of the loss. In determining this value the carrier will take into consideration the age of the property factoring in reductions for depreciation.
A more insured-friendly policy is the replacement value insurance policy. Under a replacement value policy the insurer agrees to pay the value of the property if purchased on the date of the loss rather then the actual value of the property on that date.
With each type of policy, the insurer will be required to submit proof that the property existed and to certify its value. Videotape or photographs of contents will greatly assist the insured in making a claim for these items.
Insurance carriers take a very dim view of inflated or unrealistic losses. An insured should be careful in the detail and quantity when listing the contents, which have been damaged or destroyed in a fire or other calamity.
In addition to the reimbursement for property damage, most policies of fire insurance also contain coverages for the removal of debris from the premises following the fire. This item of coverage is separate and apart from the amounts payable for the loss of building and contents. In reviewing property damage claims with the insured it is essential that all the coverages be totally understood by the insured and that he or she collect each and every loss which is available under the policy of insurance.
Automobile Insurance
In Pennsylvania, automobile insurance is mandated by statute. The Pennsylvania Motor Vehicle Financial Responsibility law, which was originally enacted in 1984, requires all owners of registered vehicles in the Commonwealth of Pennsylvania to maintain a certain amount of financial responsibility. 75 Pa. C.S.A. ' 1701, et seq. In accordance with this statute, the policies of automobile insurance must have certain first party benefits. Every policy must have at a minimum of $5,000.00 in medical benefits. See 75 Pa. C.S.A. ' 1711.
In addition to the required benefits certain additional first party benefits must be made available in policies of insurance. These benefits are described in 75 Pa. C.S.A. ' 1712 of the statute and include:
- Medical Benefit
- Income loss benefit
- Accidental death benefit.
- Funeral benefit
- Combination benefit; and/or
- Extraordinary medical benefits
Aside from the mandated medical benefits, an insured is not required to purchase the income loss, accidental death, funeral or extraordinary medical benefits. However, each of these additional benefits must be made available by the insurer issuing policies under this law.
Since many families own several vehicles, the law is clear that there is no stacking. You cannot stack or add the amount of medical coverage based upon the number of cars insured. Even if you own three automobiles and pay premiums on each policy, an insured only has $5,000.00 in medical benefits. See 75 Pa. C.S.A. ' 1717.
Financial Responsibility Law
Additional first party coverages available under the Financial Responsibility Law are uninsured and underinsured Motorist Benefits. When selling a policy of automobile insurance, the insurance carrier must offer to its insured both uninsured and underinsured motorist benefits. Uninsured motorists coverage is described as follows:
Uninsured motorist coverage - Uninsured motorist coverage shall provide protection from persons who suffer injury arising out of the maintenance or use of a motor vehicle are legally entitled to recover damages therefore from owners or operators of uninsured vehicles. 75 Pa. C.S.A. ' 1731 (b).
In addition to uninsured motorist coverage, every insurer must offer underinsured motorist coverage. This coverage is defined by the statute as:
Underinsured motorist coverage - Underinsured motorist coverage shall provide protection for persons who suffer injury arising out of the maintenance or use of a motor vehicle and are legally entitled to recover damages therefore from owners or operators of underinsured motor vehicles. 75 Pa. C.S.A. ' 1731(c).
An entire treatise has be devoted to the litigation of uninsured and underinsured motorist's claims. Essentially, this coverage allows insures to collect damages from their own insurance company in the event that they suffer injuries from drivers who have no insurance or have limited coverage. Under this statute, uninsured and underinsured motorists coverage must be written at the same limits as the liability limits of a policy unless the insured elects a lower limit.
It is important to note that uninsured and underinsured motorists coverage is not mandatory. The insured may elect to eliminate this coverage in order to reduce the amount of premium. Unlike the other first party coverages, however, the insured is able to stack uninsured/underinsured coverage based upon the number of cars insured. Again, the insured can elect not to stack these benefits. See 75 Pa. C.S.A. ' 1733 and 1734.