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CALGARY, Alberta -- Canadian risk managers should be more aggressive with insurers when submitting claims, a group of policyholder attorneys says.
Risk managers must rethink their relations with insurers at all stages, from applying for coverage to seeking claims payments, say the attorneys.
In addition, risk managers should be as artful in their interpretation of policy language when seeking coverage as insurers can be when denying claims.
"Frequently, people in Canada view their insurers more as business partners rather than commercial suppliers," said Markus Koehnen, a partner at McMillan Binch in Toronto.
This attitude leads policyholders to accept propositions put to them by insurers more readily than they would accept the propositions of other commercial suppliers, Mr. Koehnen said.
But insurers do not cut their policyholders any slack, he said.
"Insurers will take positions, quite rightly, that are in their favor. Similarly, if you are the insured, you should advance your own position," he said at the Canadian Risk & Insurance Management Society conference earlier this month.
Policyholders' shift in attitude should begin with the application for coverage form, said Daniel V. MacDonald, another partner at McMillan Binch.
Policyholders have a duty to disclose all material facts when making an insurance application. If they do not, insurers likely will deny subsequent claims, he said.
Consequently, policyholders should hold this uppermost in their minds when they are completing the application and then use the application as a check on the systems within their own companies, Mr. MacDonald said.
To lessen the chance of omissions: the task should not be the responsibility of one person; superiors who may have more information about potential risks should be consulted; and other groups within the company should be consulted, as well, he said.
By consulting with people outside of the risk management department, risk managers also can heighten the awareness of the issue with other managers, Mr. MacDonald added.
Although risk managers must disclose all material facts, there is no need for them to go further than they are legally required, he said.
"Often in insurance applications you are asked to answer a series of questions..If a question is not asked, it gives the insured a good argument that it is not a material fact," Mr. MacDonald said.
For example, "if an insurer asks if you have had a fire on the premises within the past five years, the fact that you had a fire seven years ago is not material," Mr. MacDonald said.
Also, if a policyholder leaves a question blank and the insurer fails to come back and ask for an answer, a policyholder could successfully argue that the fact was clearly not material to the insurer, he said.
Once a claims dispute does arise, policyholders hold an advantage over insurers due to the legal principle of contra proferentum, which mandates that any ambiguous language in an insurance policy should be construed against the insurer, said Mr. Koehnen.
Insurers themselves use the principle when denying claims by pointing to ambiguities in the wordings of other insurers used by the same policyholder and arguing that a claim should rightly fall on another insurer, he said.
Policyholders can use the principle to obtain coverage in seemingly contradictory instances, Mr. Koehnen said.
For example, an insured food company produces a bad batch of product that causes food poisoning. The manufacturer receives 1,000 claims of $20,000 each. The insurance for the company has a $25,000 deductible per occurrence. The insurer might argue that there are 1,000 separate occurrences that each fall within the deductible. However, the policyholder could equally argue that the occurrence was the preparation of the food, not the individual acts of consumption. Because there is ambiguity, courts would likely find in favor of the policyholder, he said.
If the food company had a policy with a limit of $1 million per occurrence and the tainted food causes $1 million in damage to each of five customers, the insurer would most likely pay $1 million and contend that the remaining $4 million exceeds the occurrence limit. The policyholder would then have to argue that each case was a separate occurrence to maximize its recovery, Mr. Koehnen said.
Similar cases have occurred in the United States with similar outcomes. As Canada has so few precedents in insurance coverage disputes due to the unwillingness of policyholders to litigate claims, Canadian policyholders can cite the U.S. precedents in disputes and courts can consider the U.S. precedents in judgments, he said.
"These two rulings may appear contradictory, but they are not when you consider contra proferentum," he said. Because there is ambiguity in each case, the policyholder would likely win, Mr. Koehnen said.
Canadian risk managers should also be more aggressive in seeking defense costs from insurers, said J. Scott Maidment, also a partner at McMillan Binch.
"The fact that your claim is not covered by a policy does not mean that you are not entitled to a defense. The defense obligation is broader and independent of the duty to provide coverage," he said.
If an insurer refuses to defend a policyholder, the policyholder should immediately consider going to court to obtain a declaration that the insurer must provide a defense, Mr. Maidment said.
Policy language on a duty to defend is often vague, however. As a result, Canadian courts have often ruled in favor of policyholders on the duty to defend, he said.
Usually, the courts rule that the insurer has a duty to defend that is separate from its duty to indemnify, Mr. Maidment said.
The session was moderated by Phil Corbeil, claims adjuster for the City of Calgary.