Today we look at the importance of being an insured under liability and property policies:
Before we get to that, the question of what an insured is, must be answered. An insured is a party who is covered under an insurance policy against specific perils by being the holder of an insurance policy. The easiest way to become an insured is to contract with an insurance company to provide insurance. One may also become an insured by being included in a policy purchased by another party. For instance, most auto and homeowner’s insurance policies include a provision that “resident-relatives” are insureds.
However, what happens when an individual did not purchase the policy and is not within the definition of an insured, but maintains an interest in the subject of the insurance policy? In this situation, you may be considered a “claimant” or “certificate holder” (little more than a statement that the actual insured is in fact insured) but have no rights as an insured. While you may benefit in the actual insured pursuing their claims, you will have no independent rights under the policy.
So why should you care? The first and most important reason is that insurers owe several duties to the insured that it does not owe to others. They are the duty to, 1) defend the insured, 2) investigate the claim (cannot ignore facts that supports a claim [Mazik v. Geico General Ins. Co. (2019) 35 Cal.App.5th 455, 462]), and good faith and fair dealing. These duties are only owed to an insured, and not to ‘claimants’ or ‘certificate holders.’
Additionally, to be marketable and maintain a satisfactory price point, policies are generally created for the benefit of the insured keeping in mind its duties identified above. To expand coverages to benefit claimants or certificate holders would unnecessarily increase indemnity payments, thus raising the cost of insurance. If you find yourself being characterized as a claimant or certificate holder, likely all of your damages will not be covered as the policy is not intended to protect you to begin with.
Examples: The most common example of not being an insured is in the lender placed insurance scenario. This occurs when a homeowner, or vehicle owner has purchased the vehicle or home subject to financing and has failed to either obtain or maintain insurance over the asset. Nearly every deed of trust or promissory note contains a provision that the borrower is required to maintain insurance, and if the borrower doesn’t, the lender will place insurance on the collateral. Generally, the lender placed insurance will only cover the banks interest which in most cases will simply restore the collateral to its pre loss condition, and in some circumstances, simply pay off the note. The lender placed insurance will not cover third party liability claims, loss of use, medical payments, personal property (homeowner claims) or injuries caused by uninsured parties. Additionally, the insurer may be under little obligation to protect the borrower’s interest. This is irrespective of the borrower’s payment of the insurance premium, which likely is far more expensive than a policy that could be purchased by the borrower that actually protects the borrower.
This can also arise in connection with real estate rental transactions (specifically renter’s insurance), and construction contracts, in addition to a number of other situations.
Avoid not being an insured: Parties can avoid a situation where they are not an insured by ensuring that they place insurance on all of their assets, reading the policy (particularly the sections describing who is “an insured,” and requiring that any individuals that secure insurance on their behalf name them as an “additional named insured.” By requiring that you be named as “an additional named insured,” you now can stand in the shoes of the insured, and the insurance company at a minimum owes a duty to act in good faith and fair dealing towards you, and not simply seek to deny the claim. This will not change the coverages; however, you will at least have some protection. Regardless, the time to discover that you are not ‘an insured’ is now, and not after a loss.
If you find yourself in need of assistance dealing with the insurance claims department, don’t hesitate to contact the Law Office of Robert J. Stirling for a free confidential evaluation at (916) 851-5909.