The second most important thing I can communicate to people about insurance law is -- Rule Number Two: Your Insurance Policy is a CONTRACT.
Some will say, “Everybody knows that.” But there is much evidence to the contrary. The vast majority of my clients over the years have never read their policies. Many of them, including lawyers, thought that regardless of the policy’s actual language their “reasonable expectation of coverage” would govern the policy’s coverage. Some thought that because the policy was an adhesion contract (and they normally are) a court would not enforce the policy as written. Others believed that all policies say pretty much the same thing or that nothing can be done to get better policy language, so why bother?
But none of that is true.
First, insurance policies are legally binding contracts and California courts usually enforce them to the letter. Right down to the punctuation! So except in unusual circumstances your expectation of coverage will have nothing to do with the coverage that's actually provided by your policy.
Second, while many people have the sense that insurance policies are immutable, there are in fact several ways for you to get better policy language--if you act before you buy the policy. Often for an additional premium you can purchase from an array of standard form endorsements. In some cases you can negotiate a manuscript (non-standard) form endorsement to eliminate or change disadvantageous policy language. In almost every case you can shop around for your coverage and force insurers to compete for your business. But you must take these steps before you buy the policy. Once you commit to buying a policy, your leverage with the underwriters evaporates.
Finally, insurance policies are like snowflakes. No two are exactly alike. There are thousands of policy forms, and insurers can modify them—often very dramatically—by endorsements. Some seemingly “standard” forms can themselves be modified on the underwriter's computer, which means they’re not really standard after all. In every case, your policy is a unique contract, uniquely issued in light of your unique risks. In future posts I will explain how and why that is true. Here, suffice it to say that your policy is not like any other policy. It isn’t even identical to the one you had last year, if for no reason other than that another year has passed and your unique risks have changed.
You and your clients will benefit from adopting Rule Number Two as a second mantra. But always, always remember, no matter what the issue may be, no matter how complicated or fraught with doubt the decision may be, see Rule Number One.