People and businesses purchase insurance for a number of reasons. However, I would argue that the primary reason is fear. After all, insurance is nothing more than a risk control tool.
In the medical insurance context, it is fear of crushing medical bills that may be incurred if there is no medical coverage. With respect to car liability insurance, it is fear of going to jail for failure to have insurance or fear of another individual taking their assets to satisfy a legal judgment. For businesses, it is fear of legal liability from injury judgments. For individuals looking to purchase life insurance, it is the fear of premature death and not being able to support those that survive.
The adequacy of coverage required to protect against this fear varies considerably. A young single person with no dependents and few assets may decide to purchase the minimum auto liability policy required by their state, may skip life insurance all together and likewise forgo heath insurance (either by choice or by lack of funds). A business in a relatively safe environment may decide that insurance isn’t needed.
I wouldn’t even begin to try to count the number of insurance policies I have reviewed. Lets just say it is a heck of a lot. Automobile, health, life, medical, accident, disability, workers compensation, cancer, critical illness, flood, hurricane, fire, deer camp, boating, scheduled items, event, professional liability and commercial. That was a mouth full, but I suspect I probably left something out. In any event, while all of these policies differed greatly as to what was being insured and for how much an event was insured, most of the policies had a couple of common provisions.
First, the insurance company will not pay under the policy if you lie to them or commit fraud in procuring the policy. For example, if a doctor applies for a claims made policy that will pay for any claim made during the 2013 year, he can’t lie on the application where it asks him if he has notice of any potential claims from 2012. On a similar note, if a medical insurance application asks about previous medical history and you omit the two heart attacks, cancer diagnosis and bilateral hip replacement you had in the previous five years, don’t be surprised when they deny your claim based on material misrepresentation. You get the drift.
Second, the insurance company will not pay under the policy for damages expected or intended by the insured. If you have a commercial liability policy for your business, it will probably provide coverage for the little old lady that is injured when a ceiling tile falls on her head at your store due to a leaking air conditioner. That same policy probably isn’t going to provide coverage if your store manager shoots a fleeing shoplifter in the back with a shotgun. In the first example, your employees didn’t intend to injure the little old lady, but in the second instance your employee dang sure intended to injure the shoplifter.
In reading the news this week, I ran across a story about Penn State claiming to be “adequately insured” for their Sandusky liability. Anyone that doesn’t know about the Penn State/Jerry Sandusky controversy has either been out of country for a few months or has their head in the sand. In either event, the Cliffs Notes version is that Sandusky worked for Penn State as an assistant football coach for many years. While doing so, he apparently molested many, MANY young boys.
After Sandusky’s arrest, Penn State hired former FBI Director Louis Freeh to prepare an independent report regarding the situation. You can find the entire report here but the overview will save you the sordid details:
Our most saddening and sobering finding is the total disregard for the safety and
welfare of Sandusky’s child victims by the most senior leaders at Penn State. The most
powerful men at Penn State failed to take any steps for 14 years to protect the children
who Sandusky victimized. Messrs. Spanier, Schultz, Paterno and Curley never
demonstrated, through actions or words, any concern for the safety and well-being of
Sandusky’s victims until after Sandusky’s arrest.
If all of these individuals had knowledge of Sandusky’s actions and disregarded the safety and welfare of Sandusky’s child victims, I seriously doubt Penn State is adequately covered. In fact, I doubt Penn State will be covered by insurance at all. According to the news report, the insurer for Penn State (Pennsylvania Manufacturers’ Association Insurance) filed an action last week to deny or limit coverage. That comes as no surprise given the allegations of intentional misconduct.
Even if the insurance is valid, I do not know how anyone could claim to be adequately covered for a situation where an employer had knowledge of an employee raping and sodomizing young boys, but failed to take any action whatsoever. Unless there are damage caps in place for Penn State, the potential liability could easily be in the hundreds of millions of dollars depending on the number of victims that come forward. Then again, liability of hundreds of millions of dollars isn’t going to change what happened to those boys and will be a mere drop in the bucket for a university with a reported $4.6 billion in operating revenue for the last fiscal year and an endowment topping $1.8 billion.