If you buy insurance to protect your company, you'd better darn well know what it does - and does not - cover, the Arizona Court of Appeals has ruled.
In a unanimous decision, the judges rejected arguments by the owners of a Payson nursing home that they had a "reasonable expectation" that there would be coverage for a specific incident. The court said a plain reading of the contract showed otherwise.
And the court also said the fact that the insurance company did not explain how gaps in coverage could occur did not alter that.
According to court records, Payson Premier LLC obtained a professional and general liability policy in January 2005 for the Rim Country Health and Retirement Community it operates. The policy was good for one year.
The policy covered incidents occurring within that year. And it said there would be coverage for any claim made against the nursing home within 30 days of the policy's expiration.
In July 2005 the state Department of Health Services sent the home a "notice of enforcement" alleging violations of state statutes and rules in the discharge and subsequent death of a resident.
The claim administrator for the insurance company said coverage had not been triggered because no claim had been filed on behalf of the former resident. And the administrator closed the file about two months after the expiration of the policy because, as of that time, there still was no claim.
A lawsuit was subsequently filed, but not until April of 2006. The insurance company then went to court, arguing that it owed no duty to the facility because no claim was filed within the 30 days after the policy ended.
Attorneys for the nursing home agreed those are the terms of the terms of the policy. But they said that should be ignored because the insurer never advised the facility's general manager there would be no coverage if no money was actually sought during the year the policy was in force.
Beyond that, they said the general manager was unaware "that demands for money or lawsuits do not happen until many months after the incident."
Appellate Judge William Brammer Jr. acknowledged that there are times when the reasonable expectations of someone who buys an insurance policy will override the contract terms. But he said these are limited to certain situations.
For example, Brammer wrote, courts will use the expectations of the person buying the coverage if the policy "cannot be understood by the reasonably intelligent consumer who might check on his or her rights." And Brammer said policy terms can be overridden if the insurance company did something to make a consumer believe there was coverage, or where the person did not get full and adequate notice of a provision that would be "unusual or unexpected."
But Brammer said the failure to explain how long it takes between the time of an incident and when a lawsuit might be filed doesn't fit those categories.
"We find no authority suggesting an insurer must explain all possible implications of unambiguous policy terms," he wrote. "An insurer gives adequate notice of a policy's clear and unambiguous terms if it gives a copy of the policy to the insured and takes reasonable steps to make sure any exclusions or limitations are made apparent to the insured."
Beyond that, Brammer said there is nothing in the record to suggest the nursing home would not have purchased the policy even if it knew of the possible delay between an incident and the filing of a claim.