Court Interpretation of Coverage and Exclusions

April 13, 2006

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Selecting the types and levels of insurance is vitally important to a small business owner seeking to avoid day-to-day liability risks. So an owner should follow some general insurance guidelines if he or she wants to take full advantage of the protections purchased.

Remember that all insurance policies contain language that can be ambiguous in certain situations. The ambiguities may relate to the scope of coverage or to specific exclusions from coverage.

In dealing with an insurance company on coverage and exclusion issues, the small business owner should be aware that the courts almost uniformly have held that coverage is to be liberally construed, while exclusions from coverage are to be narrowly construed.

Don't expect the insurance company to tell you this or even to assume you know this, but where coverage is an issue, generally there is a strong presumption in favor of coverage.

Warning

Don't be misled by this presumption. If there are no ambiguities concerning a lack of coverage or a specific exclusion from coverage, the presumption in favor of coverage will not apply and the insurance will not cover the situation.

Ideally, the small business owner will obtain an unexecuted copy of the policy and determine the scope of coverage and exclusions before purchasing the policy.