Monsters Under the Bed: Insurance Coverage Gaps and Other Invisible Exclusions

Insurance Journal

PUBLISHED ON: November 20, 2012

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Neither insurance policyholders nor courts look kindly upon exclusions from the broad coverage provided by insurance policies. Policyholders often balk at exclusions when preparing to pay their hard-earned dollars to buy insurance policies, and courts apply favorable rules of insurance policy interpretation to prevent the improper overuse of
exclusions from the coverage provided by insurance policies.

Perhaps these two dynamics partly explain the growth in “invisible exclusions.” Because a policy with clear exclusions will not sell to the public, and because courts will not enforce exclusions that are not clear, invisible trapdoors are placed into the policy to allow an insurer to avoid a claim payment.

There are many improper attempts by insurance companies to avoid paying covered claims. Recent tactics include improper assertion of coverage gaps, assertions that underlying policy limits are not exhausted, and allocation.