RISKVUE ARCHIVE | FEATURE STORIES

Demand Careful Policy Review!

Because insurance policies are legal documents, some risk managers might assume that they have been subject to meticulous examination by both the insurer and the broker prior to being delivered. A careful review of the policy by the drafters and by the broker or agent should guarantee that the policy expresses fully the intentions of the insurer and the expectations of the insured, and that the documents use proper grammar and punctuation. After all, these documents are often interpreted by the courts, where subtle nuances of word choice, punctuation and grammar may make the difference between a covered claim and an uninsured loss.

Unfortunately, the level of quality control of even the most prestigious of agents, brokers and insurers is sometimes low. Poor English is often the rule, and the readability of some policies can be described as tortuous. One judge reviewing a directors and officers liability policy compared the policy wording to a “linguistic Tower of Babel.”

Along with poor draftsmanship, risk managers we spoke with listed the following common oversights as particularly annoying:

• Policies delivered without proper authorizing signatures
• Incorrect inception, expiration or retroactive dates
• Incorrect spelling or bastardization of the corporate name
• Incomplete or outdated list of named insured or additional insureds
• Property descriptions, locations, limits of liability and deductibles incorrectly scheduled or outdated
• Missing endorsements
• Unexpected endorsements

Too frequently policies are delivered with such obvious omissions, abominable punctuation and flagrant typographical errors that one might question whether the document was ever read, let alone reviewed. Especially disturbing is the practice of some insurers who “borrow” wording from a competitor’s policy form, replete with errors! The borrowing problem is most acute with manuscript and heavily endorsed policies; however, we are also aware of similar errors in preprinted policy forms.

Risk managers should not accept any type of contract that is less than letter perfect. This is especially true of insurance policies. Brokers and agents should be meticulous in their review. Policies that are less than perfect should be sent back to the insurer for correction.

If you encounter policy language that is incomprehensible or is potentially undesirable, don’t hesitate to press for a written explanation or modification. Insurance policies should be negotiated by both parties.

Sending the policy back to the insurer does two important things: (1) It communicates to the broker that they are expected and will be held accountable to give your documents a thorough examination. (2) It tells the insurer that shoddy draftsmanship is not acceptable.

While getting your documents corrected may take more than one attempt on the part of the agent or broker, most risk managers will appreciate the extra effort. The broker or agent will also avoid the embarrassment of delivering a defective document. There is no excuse not to strive for perfection in this area.

Astute agents and brokers will be candid, advising the insured of any policy peculiarities discovered during their initial review. Ideally, such advice will also come with a plan for corrective measures. While most risk managers would prefer the results advocated by the old adage “right the first time,” agents and brokers eager to point out policy deficiencies generally deserve kudos.

If you consistently get policies with obvious errors, this may be an indication of more systemic problems with the agent or broker rather than just plain oversight. Remember: Insurance policies are legal documents—treat them as such! 

riskVue | The webzine for risk management professionals
May 2000