​We all know the phrase “The devil is in the details." It is often attributed to the famed architect Ludwig Mies van der Rohe. The expression derives from an earlier German proverb “Der liebe Gott steckt im detail," which translates as “God is in the detail." Never has that phrase been more critical and, sadly, regularly ignored than in our new digital society. We agree to, and click on, any and everything as long as we get access to whatever service or website we desire. But we never read the fine print. We all should. Our professions demand it of us.

Allow me one quick story to set the stage. Before Covid I went to Hoboken NJ to eat at a famous pizzeria. I always keep quarters in my car in an empty Airborne tube (the perfect size), for the parking meter. Imagine my shock to find that the meter did not take US Legal Tender. Assuming that you paid at a central machine and put the receipt on the dash, I looked for it. However, there was none. It turns out that Hoboken contracted with a third-party parking software company and the only way to pay to park on a city street in that city is via the App. The App required me to give them all kinds of information and keep a credit card on file. So, instead of agreeing to this, I skipped the pizza and went home. When I got home, I read the entire “User Agreement" for that App. At the end there was an arbitration provision and my agreement to waive all rights to sue in New Jersey if there was any dispute. Worse, any arbitration had to be in Georgia under that state's law. Because of this I have not been back to Hoboken since.

Insurers are doing the same thing in policies with endorsements that are severely gutting insured's rights.  As a result of this, you need to (1) be on the lookout for them and (2) see if you can prevent their inclusion in insurance policies that you procure.  Here are several of the most egregious:

 

Recently, I had the opportunity to represent a building owner in a coverage dispute with his liability insurer. When reviewing the insurance policy, I was shocked to find a form attached to the policy related to arbitration. Under the heading “BINDING ARBITRATION" the form said, among many other paragraphs, as follows:

Despite the propaganda, arbitration is not cheaper than litigation in the long run. Worse, there is no appeal available from an arbitration decision. Giving up rights to make use of the court system, especially as to coverage disputes, is terrible for the insured. Accordingly, it is best to obtain an insurance policy that does not contain this type of provision.

   

The Duty to Defend - Extrinsic Evidence Endorsements

As you all know, a liability policy has 2 distinct contractual and separate obligations; the Duty to Defend and the Duty to Indemnify. The Duty to Defend is critical as it requires the insurer to pay for the defense, even if eventual indemnification is problematic. An insurer will be called upon to provide a defense whenever the allegations of the complaint suggest a mere reasonable possibility of coverage. Key to the triggering of that defense, is that it is based on, and only on, the allegations contained within the four corners of the complaint. As the Courts have said time and time again, the duty to defend remains “even though facts outside the four corners of [the] pleadings indicate that the claim may be meritless or not covered."[1] Documents and information obtained by a claims adjuster during its investigation of the claim or suit are called “extrinsic evidence." Even if those documents would prove there is no coverage for that suit, they are forbidden from being used to deny defense. “Where there exists, extrinsic facts suggesting that the claim may ultimately prove meritless or outside the policy's coverage, the insurer cannot avoid its commitment to provide a defense."[2]

To get around this rule some insurers are starting to use Extrinsic Evidence Endorsements that contractually allow the insurer to use such outside facts and documents to deny coverage. These are facts and documents that New York law would never allow to be used for that purpose. Therefore, it is best to obtain insurance policies that do not contain this type of endorsement.

 

Rescission Endorsement

We all know that insurers regularly seek to rescind insurance policies based upon material misrepresentations in the applications. They often send the insured a letter saying that they are unilaterally rescinding the policy. The letter to the insured rescinding the insurance policy comes with a return premium check. Those letters are actually unethical and illegal. Here is why:

There are two major sections of the legal system that trace back to the English Common Law.  Historically, Equity and Law were separate. Courts of Law were empowered to grant relief in money. But, when a party wanted something non-monetary, like an injunction to stop something from happening, that could only be granted by a Court of Equity.

New York, along with most state court systems, combine the two and a judge can grant either or both kinds of relief. But rescission, as an equitable remedy, can only be granted by a judge. (Not even a jury).  Thus, only a judge can grant rescission of an insurance policy and the standard is found in NY Insurance Law Section 3105. Rescission of an insurance policy cannot be done unilaterally.  At least, not under NY law.

However, recently, while reviewing one company's insurance policy, I noticed an endorsement that contains language that seems to contractually allow it to rescind the policy unilaterally without having a court do it. This is something that should not be allowed and puts the insured in an awful position.