Coverage Concepts: Lessons from a Legend

By Kevin C. Amrhein, CIC

I miss Jim. Exactly three years ago from the day I wrote the draft of this article, Jim Harrison – my friend and long-time mentor – passed away. The void his passing has left in the business of insurance education, dare I say the business of insurance as a whole, remains formidable. Those who knew him best will attest to his not-silent frustration with the insurance industry and its representatives’ tendency to overcomplicate and jumble concepts that he believed were quite simple. His passion for deconstructing insurance policies made him an exemplary teacher and placed him among the most respected technicians in the industry.

As I think of him now, I’m inspired to share with you an exchange we had many years ago from which I still benefit. While this discussion was specific to the ISO CGL, its concepts could be applied to any insurance policy.

THE SETUP

I received an inquiry from an agent regarding the “contractual liability insurance” being requested from his insured and how such would be created by the ISO CGL. I pieced together an impressive email response, citing the definition of “insured contract,” the contractual liability exclusion, and its exception which could create coverage. I was so proud of my effort that I showed the email to Jim.

After reading it he looked up at me and said … “It’s sh*t.”

I slumped down in a chair by his desk, defeated. I knew he was right because he always was. But I had no clue why. I insisted on an answer.

His two-point response, summarized below, will stick with me forever.

JIM’S FIRST POINT

“Words matter. If it don’t say it, don’t say it.”

The ISO CGL does not provide “contractual liability insurance.” It provides general liability insurance. While it may seem like semantics, this is a legal contract. Good

lawyers live in big houses because they make piles of money shredding folks who use or rely on incorrect or misleading terms.

JIM’S SECOND POINT

Only the Insuring Agreement “creates” coverage.

When researching my response, I made the common error of starting in the middle – going straight to exclusions and exceptions, the latter of which I thought created coverage.

According to Jim, my response was flawed for two reasons: 1. I neglected any mention of the Insuring Agreement, and 2. I referred to an exclusion’s exception as a “creation” of coverage.

First, overlooking a policy’s Insuring Agreement was a HUGE issue with Jim. He often shared his frustration when he would receive coverage inquiries from people whom he believed did not first read the full policy in its logical order. “If the Insuring Agreement precedes the exclusions, then it does so for a reason,” he said.

Second, he believed that the Insuring Agreement is the only part of the policy that “creates” coverage. He disliked when people would say an exception to an exclusion “created” coverage and thought that agents who spoke that way were setting up their insureds for failure. As an example, he cited a case he worked on where the insured was a subcontractor who signed a contract agreeing among other things to pay claims of his own faulty workmanship if filed against the GC. A review of the CGL’s contractual liability exclusion and its exception for an “insured contract” led the insured to assume that the policy covered claims of faulty workmanship because the CGL’s contractual liability exclusion didn’t apply. Thus, the insured assumed the exception to this exclusion “created” coverage for any liability assumed in a contract.

Jim believed a better understanding of the policy’s Insuring Agreement would have prevented this insured from reaching that incorrect conclusion. Jim pointed out that (in summary) the CGL’s Part A Insuring Agreement covers claims of BI or PD “to which this insurance applies.” For an insured, agent, or anyone to imply that an exception to an exclusion (in this example, contractual liability) “creates” coverage is misleading as it fails to consider other exclusions (in this example, faulty workmanship) which make this insurance not applicable. In other words, an exception to an exclusion doesn’t “create” coverage. Rather, it simply says that exclusion does not negate the coverage created in the Insuring Agreement.

CONCLUSION

Jim Harrison believed that if more people mastered fundamentals such as those recollected here – exercising caution with their words and respecting the structure of the policy – most claims disputes and resulting litigation would not occur. Regardless of their age, experience, or position, he respected and adored those who possessed a true eagerness to learn. If the lessons in this article stick with you as they have with me, then I know somewhere the old Texan is pleased.

That’s all for now. Until the next round … cheers!

Kevin C Amrhein, CIC, is IA&B‘s education consultant. He works with our CISR and CIC programs, as well as our special topic seminars and live webinars. Catch him at one of our upcoming professional training offerings: IABforME.com/education.