Determining Whether an Exclusionary Provision in an Insurance Policy Actually Precludes Recovery

Many individuals and companies don’t read their insurance policies until an event has occurred and they need to recover for losses under the policy.  Sometimes, an individual or company will file a claim with their insurance company, only to be rejected coverage due to an exclusionary provision.  Exclusionary provisions generally preclude the policyholder (the “insured”) from recovering for a particular activity from the policy provider (the “insurer”).  When an exclusionary provision precludes the insured from recovery, the insured should first determine under what provisions they may seek recovery, determine whether an exclusionary provision applies to deny recovery, and if so, then determine whether an endorsement has been issued under the policy effectively invalidating the exclusionary provision.  The mere presence of an exclusionary provision in the original policy may not necessarily preclude the insured from recovery.

Regardless of whether or not an endorsement exists, the insured should determine whether the terms in the policy directly apply to the loss they seek to recover.  For example, if an insurance policy provides that an employer may recover for “employee dishonesty” or “employee theft,” the insured should look to the defined terms to determine whether the insurer specifically defined the term.  This could present an avenue of recovery if the term does or does not include the event in question.  For example, if the insured defined “employee theft” as excluding conversion, and thereafter listed employee theft in an exclusionary provision, you may be have a valid argument to recover for an employee’s conversion.  If the term is not defined, courts often interpret the meaning by the “plain meaning” of the terms.  In the event there is an ambiguity, courts are deferential to construing the ambiguity in favor of the insured.  See, e.g., Firemans Fund Ins. Co. of San Francisco, Cal v. Boyd, 45 So. 2d 499 (Fla. 1950).

In the event an endorsement exists, the applicability of an endorsement can ultimately enable the insured to recover.  An endorsement is essentially an alteration to the original policy, and often invalidates clauses or provisions contained within the original policy.  Although an exclusionary provision in the original policy may preclude the insured from recovery, if the endorsement contains a provision effectively excluding or terminating the exclusionary provision, the insured may have an avenue in which to seek recovery.

When an insured is interpreting the endorsement, and the endorsement contains language which is ambiguous with the original provision, courts often construe the provision in favor of the insured, therefore allowing the insured to recover for a loss.  See, e.g., Firemans Fund Ins. Co. of San Francisco, Cal v. Boyd, 45 So. 2d 499 (Fla. 1950).  For example, if an exclusionary provision precludes the insured from recovery and an endorsement alters the exclusionary provision by including ambiguous terms, the court will likely determine the insured should recover.  Furthermore, once a loss falls within the coverage of an insurance policy, the burden shifts to the insurer to prove the loss arose from a cause excepted from the policy.  State Farm Auto. Mut. Ins. Co. v. Pridgen, 498 So. 2d 1245, 1248 (Fla. 1986).

Ultimately, insureds should be weary of the crafting of their insurance policies.  The presence of exclusionary provisions may not necessarily preclude the insured from recovery.  If an ambiguity exists, an argument can be made in favor of recovery.  If an endorsement exists, it may include alterations to the exclusionary provision effectively invalidating the exclusion.  In some cases, the endorsement may prove to be the key to recovery.  It may also provide a provision to the detriment of the insured.  In sum, insurance policy must be read carefully and concisely in order to determine avenues for recovery.