Insurance is a legally binding contract, typically referred to as an insurance policy. The contractual relationship is between the insurance company and the person or entity buying the policy, the policyholder. The policyholder makes payments to the insurance company, which can be monthly, quarterly, or yearly. The insurance company agrees to pay for certain types of losses under certain conditions, which are set forth in the policy.
One requirement for insurance is that the policyholder needs to possess an insurable interest in the subject of the insurance. A policyholder renting property is said to have such an interest in the property. Insurance policies compensate an insured party for the cost of monetary damages in the event of economic loss or in the event of damages leveled against a policyholder who is liable for damages to another. Liability insurance pays damages up to the dollar amount of liability coverage purchased and protects the personal assets of the policyholder in the event of a judgement against the policyholder for damages. Some renters’ policies cover legal liability in the event that anyone suffers an injury while on the insured property. Certain actions of the policyholder, which occur away from the insured property may also be covered.
When a renter purchases liability insurance, part of the insurance company’s obligation is to provide a defense in the event of a lawsuit. Even though the insurance company selects the lawyer and must approve the payment of all legal fees and other expenses of the lawsuit, the lawyer represents the policyholder. Under most types of liability insurance, the insurance company has the contractual right to settle or defend the case as it sees fit. The policy owner has an opportunity to provide input, but the company typically has no obligation to obtain the policyholder’s consent or approval.
The entity that the renter is leasing from typically has some type of liability insurance also. This may, in some circumstances, cover the renter. Liability suits may involve several different claims, some of which may be covered by the liability insurance policy and some of which may not be covered. The insurance company is obligated to provide a defense for any claim, which could be covered, but the company may not be obligated to pay the damages for certain types of claims. Since liability policies typically do not provide coverage for intentional acts, there may be a factual question as to whether the policyholder acted intentionally. Negligent or accidental acts are generally covered; however, papers filed in court might allege both negligent and intentional actions. In such a situation, the insurance company may send a Reservation of Rights letter. This is a notice that the company is paying for the defense for the claim but is not agreeing that it is required to pay for any and all losses under the terms of the policy.
Limitations and exclusions can alter the provisions of coverage in a policy. A limitation is an exception to the general scope of coverage, applicable only under certain circumstances or for a specified period of time. An exclusion is a broader exception which often rules out coverage for such things as intentional acts, when the policy covers damages due to negligent acts.
Insurance companies and policyholders have contractual obligations which must be satisfied to ensure resolution of claims. Insurance policies list specific things a policyholder must do in order to perfect a claim once a loss has taken place. These duties are known as contract conditions. Policies typically require an insured to give prompt notice of any loss or the time and place of an accident or injury. Liability claims require the policyholder to give the insurance company copies of all notices or legal papers received.
The insurance company may ultimately refuse to pay part or all of a claim. The insurance company may take the position that the loss is not covered by the policy, perhaps because it was the result of some intentional act. Or the insurance company may allege that the policyholder took some type of action that rendered the policy void. Because insurance policies are contracts and open to interpretation by the courts, policyholders may be able to use the legal system to reverse such decisions. If an insured opts to consult an attorney to pursue such remedies, it should be an attorney other than the one hired by the insurance company to represent the policyholder.
