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altering contracts and insurance
July 10,  2017
altering contracts and insurance
    You mention that we should not explain contract clauses.  That, in the real world, is easier said than done, but I’m sure we all do our best to avoid dispensing legal opinions without the proper training.  I get that.  I recently learned, however, that my insurance carrier doesn’t really give a darn if I cross out any clause of my agreement.  This I got from my agent who say he has contractors doing it often, and chuckles at how often we’ve gotten away with a$250.00 limitation of liability.  As the carrier asks at every renewal for a copy of my agreement and how many agreements I have altered the limit of liability clauses, I’m not sure I buy his answer.      Anybody care to comment? 
Jean Levenson
    There are lots of different departments that make up your insurance carrier.  Your broker is most often familiar with the Underwriting Department, which includes the sales department.  Underwriters assess the carrier's exposure if it writes your insurance.  They have been trained to check if you use contracts and if the contracts contain specific provisions, defense provisions.  For the most part they are not sophisticated with the provisions and cannot really determine which are written poorly or well.  The sales department is even less sophisticated with the contract provisions; it's their job to bring in the sales.  
    Your broker probably has little or no contact with the Claims Department.  They handle the claims.  The smarter claims reps know that a properly unaltered contract can be very helpful, if not determinative, in defending a claim.  But they are stuck with whatever you send them.  A big enough claim may warrant a "committee" and the fact that your contract is really not worded properly or that you have altered it, may get back to the Underwriting Department.  That could affect your next premium or whether the carrier will even renew your policy.  
    So, it is probably more accurate to say that your broker let you know that you are not going to lose your coverage if you alter a contract, at least for that claim.  But any changes to the contract will likely increase your risk and that means make it harder or more costly for your carrier to defend or extricate you from the claim or litigation.  
    I don't think all the carriers servicing the alarm industry think alike.  When I first started handling alarm defense cases I believed that the insurance carriers really cared about the alarm industry and protecting the developing law that dealt primarily with the enforcement of the contract provisions.  I am less convinced that's the case today.  Years ago alarm insurance was written with the underlying premise that the coverage was really defense cost, because the contract would protect against paying claims.  Alarm insurance was different in that regard because the carriers didn't expect to have to pay claims, just defend them.  Today it seems like carriers are treating the alarm industry like any other book of business.  Write the policy, pay the claims.  Some carriers would rather pay the claim than incur defense legal fees beating the claim.  And the carriers are finding and using the cheapest counsel they can find and not even letting them spend the necessary time to properly defend a case.
    This is happening as I write this.  One client is being sued for a fire loss, all property damage.  It used one of my older contracts, maybe 10 or so years old, but still containing all the protective provisions, including an arbitration clause.  Case was assigned to defense counsel by the carrier.  I asked for and got a status report on the defense.  Turns out that while the defense counsel had identified most of the essential defense provisions [in this case the waiver of subrogation was the most important] another associate lawyer in the firm prepared the answer to the complaint and left out every single protective provision in the contract.  The only affirmative defenses raised could have involved a car accident.  Pathetic.  I spoke to the current associate lawyer handling the case, told him some basics how to handle the defense, and wished him luck. 
    But there was one bit of advice I gave that certainly eluded him.  The plaintiff in the action is an insurance company suing under subrogation rights.  This carrier writes insurance for the alarm industry.  Is it hoping to defeat the contract terms?  How does this serve the alarm industry, or this carrier who is going to be stuck defending other alarm cases?  How does this happen?  Here's how.  The Subrogation Department is yet another department in the insurance company.  The disconnect between departments is scary.  
    I told the defense counsel to call the subrogation attorney and tell him to call his carrier and see if it would discontinue the case, particularly because there is a waiver of subrogation in the alarm contract.  I also told him that I do some defense work for the plaintiff- insurance carrier, and that I might decide to intervene by calling the Claims Department to let them know what the Subrogation Department was up to.  I won't disclose the name of the carrier yet; let's see how things work out.  
    Getting back on topic, avoid explaining what the contract means.  Act as dumb as the subscriber.  How hard can that be?


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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
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