Easy to Read & Understand
Insurance policies are contracts. To form a contract an insurer must make an offer that is accepted by a potential insured who then pays consideration – premiums – for the promises made by the insurer. In California insurance is defined as: “Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.” [California Insurance Code § 22]
No one has a right to insurance. It is a contract between an insurance company and a person seeking insurance called an insured.
An insurer and an insured agree that the insurer will provide indemnity to the insured as a result of a contingent or unknown event that causes loss to the insured. The language of insurance contracts comes in multiple formats with an almost infinite variety of terms and conditions. It is recognized that an insurance contract can be written to contain nearly any terms that the parties to it choose to incorporate within the contract of insurance. Insurance companies and their insureds are free to agree to any terms in a contract of insurance so long as they do not offend some rule of law or contravene public policy.
Contrary to what the public believes, property insurance, like a homeowners policy, does not insure property. It insures people who have an interest in real or personal property, who face the risk of losing that property to unknown or contingent perils, and who are named as insureds by the policy contract. Standard, old form insurance property insurance policies, only insure against the risk of loss by specified perils like fire, lightning, windstorm, or hail. If the insured suffers a loss to his or her house by one of the specified perils like fire the person insured will be indemnified for the losses incurred. Modern property insurance policies, like homeowners policies, insure against direct risks of physical loss not specifically excluded. Coverage would be available, therefore, unless an excluded loss like flood or earthquake occur.
The risk of the loss is spread among the customers of the insurer so that the cost of insurance is affordable. It is “first party” insurance against risks faced by property in which the insured (the first party to the contract of insurance) has an interest and by the loss of which the insured would be damaged.
First party property insurance is a contract of personal indemnity. It does not follow title to the land. The insurer makes a promise to the first party, the insured, that if there is a loss to property in which the insured has an interest, to pay indemnity for the loss. To obtain that indemnity the insured must fulfill the promises it made to prove its loss and cooperate with the insurer’s investigation.
The insurance policy contract is considered a contract of utmost good faith. That means that neither party to the insurance contract will do anything to deprive the other of the benefits of the contract. Therefore, if your house is damaged by fire or your contents are stolen, you – the insured – are obligated under the terms of the policy to promptly report the loss to the insurer and cooperate in its investigation to determine the extent of the loss. The insurer on the other hand is obligated by the policy, and local law, to treat you fairly and in good faith and indemnify you for every loss you incurred if caused by a peril insured against or not excluded.
The insurer calculates the actual cash value, or fair market value of the loos, and will pay that amount as soon as it is established by inspection of the property and your presentation of evidence concerning the purchase and value of the property. You are required to prove the extent of the loss and will usually be asked to present a sworn statement in proof of loss that is prepared with the assistance of the adjuster representing the insurance company. If you have a modern homeowners policy you are entitled to full replacement cost – new for old on your dwelling and if you pay extra you can have full replacement cost on the contents.
If you don’t have time to prove the loss yourself you can hire a licensed public insurance adjuster who will charge you anywhere from five to fifteen percent of the total amount paid by the insurance company. Of course, when you pay the fee charged by the public adjuster, you will not have enough to replace that lost or damaged.
This article and all of the blog posts on this site summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.