I had a conversation last week that gives me hope for society and makes me angry at the same time. It all goes back to an unfortunate incident where a friend had a motorcycle accident. He and his bike are in rough shape. He asked me if he should just file a claim with his insurance company or pursue the claim with the at fault driver.
His question comes from an honest place. He just wants to be indemnified. He’s not looking for a windfall. He’s not looking to collect more than he’s due. He wants his bike and his bones fixed. That seems pretty fair. He didn’t even think about issues like pain and suffering or consequential loss. He just wants what’s broken to be fixed. I’m relieved that there are still people in the world that want their insurance to work the way it was designed.
So why am I angry?
He was sucked in by the insurance industry advertising that tells us that, “in 15 minutes, you can save 15%”. When he called the 15% off insurance company, the first question that the “agent” asked him was “do you want the state minimum limits?” There’s your savings. The company essentially tells the customer that he is overpaying for limits that he won’t need anyway. Thankfully, my friend didn’t end up with the state minimum limits. Unfortunately, he ended up with limits that are so low that they won’t actually protect him and his assets.
Friends, if you know anyone that has bought insurance through the save 15% in 15 minutes company, check their policies and make sure that they didn’t save 15% at the cost of their protection.
Is that all?
No. That’s not all. He didn’t understand his policy at all. Not only did they sell him an inferior insurance product, but they didn’t explain it at all. I know that the standard of care is to get the insured the policy that they want and caveat emptor, but I have a real problem with this. Buying insurance isn’t like buying a toaster, a car, or a house. Buying insurance is about buying a promise that won’t be fulfilled until someone has had the worst day of their lives. So, when we sell a policy without helping the customer to understand what they bought, we set them up for failure. Let me specific to the case of my friend.
Coverage for “bodily injury”?
He believed that liability (specifically auto liability) provided coverage for “bodily injury” (BI) and “property damage” (PD). That’s not exactly right. Let’s go to the insuring agreement and I’ll show you what I mean and by the way I’m using my auto policy for this example.
We will pay compensatory damages for BI or PD for which any covered person becomes legally liable because of an auto accident. We will settle or defend, as we consider appropriate, any claim or suit asking for these damages.
The coverage is not for BI or PD. There must be BI or PD for there to be coverage, but that’s not what the coverage is for. Let’s work it out.
There must be BI or PD.
There must be an auto accident.
A covered person must be legally liable, or at least the company must determine that they may be liable.
There must be compensatory damages.
The BI or PD is the result of an auto accident. The have to be damages related to the BI or PD as a result of the auto accident. Someone needs to ask for money for the damages related to the BI or PD as a result of the auto accident. This particular policy specifically restricts damages to compensatory damages.
My friend didn’t understand that the term compensatory damages encompasses more than the doctor bills and damages to his motorcycle. Let’s see if we can define compensatory damages so that your customer doesn’t have the same trouble that my friend is having.
According to Black’s Law Dictionary, there are two broad types of damages: compensatory and punitive. Punitive damages are meant to punish someone for the wrong that they have done. As a matter of public policy, many jurisdictions do not allow insurance to cover punitive damages.
Let’s look at the definition of compensatory damages, since our policy refers specifically to them. Compensatory damages are meant to compensate a person for a loss that they have incurred. It’s really that simple, but it isn’t. Compensatory damages can also be divided into two groups: special and general damages.
Going back to Black’s Law Dictionary, special damages include those damages that you can easily put a dollar amount to. These include medical bills, lost wages, towing fees, vehicle storage, and ambulance charges all come to mind as special damages. You could think of special damages as damages that come in writing, either in a bill, or a wage and earnings statement.
General damages are harder to calculate because they don’t come with a bill. You’ve probably heard of these general damages before. We are talking about things like: pain and suffering, anxiety, and emotional distress. There’s no specific dollar amount attached to these losses, but they are considered losses just the same and the injured party can be compensated for them.
Now that we have an idea what compensatory damages are, when we consider the insuring agreement again, we understand that there is more that could be paid than just the medical expenses or damage to a vehicle. With more and more people looking at auto insurance as a commodity that can be bought just like you would buy a new hat online, more and more customers don’t really understand their insurance.
Did his policy cover anything?
More customers don’t know what their policy actually covers. He lives in a no fault state, but in those states, you can’t get no fault insurance on a motorcycle. They will give the customer some medical payments coverage, but that’s it. When my friend asked about making the claim against the other driver or not, he didn’t realize that his motorcycle policy had less than $1,000 in medical payments for his injuries.
In the end, will my friend be indemnified? Only time can tell. Hopefully, after a few conversations, and taking time to look at actual policy language, he’ll get the claim paid and he’ll get his bones and his bike fixed. Whether or not he gets back on the bike; if I had to guess, he’ll climb back on come spring and he’ll have a better understanding of what insurance he has in place.