Jeffrey Stempel has a way of pulling legal concepts out of the dusty corners of academic theory and dropping them directly into the middle of real-world disputes we see every day. Following up on yesterday’s post, The Insurance Policy as a “Thing” – Why Jeffrey Stempel Still Has the Insurance World Thinking, and Stempel’s article, The Insurance Policy as Thing, my observation is that Stempel does precisely that. His thoughts about the insurance product push courts, lawyers, adjusters, and anyone involved with insurance to think about insurance not as a private contract negotiated line-by-line, but as a mass-produced product sold to people who rely on it to work when life goes sideways. That message is already powerful. But where Stempel truly connects with those of us in the trenches is in the examples he uses.
One of the most relatable cases discussed in his article is the TRB Investments opinion out of California. 1 If you handle property claims or even sell insurance, you already know this common scenario: a building sits empty for a stretch, construction crews come in, renovations begin, and just when progress is underway, a pipe bursts. The insurer seizes on the vacancy exclusion and issues the familiar denial letter. To many policyholders, this feels like getting billed for a warranty claim on the toaster they just bought. Stempel shows why this instinct is right.
The California Supreme Court brought some needed common sense to the issue. Instead of treating “construction” like a magic word limited to brand-new buildings, as the insurer contended, it treated the insurance policy like the product. It noted that the insurance policy is a protection device meant to respond when damage occurs under the same risk profile the insurer priced. The court recognized that a building under active renovation isn’t sitting dark and abandoned. Workers are present. Systems are being tested. Risks look a whole lot like the risks of an occupied building. And if the building isn’t in the increased-risk state the vacancy exclusion is designed to address, the exclusion shouldn’t apply.
What Stempel highlights so effectively is that coverage determination isn’t just a matter of clever textual interpretation. It’s about understanding what the insurance “thing” is supposed to do. A policyholder doesn’t buy property insurance to debate grammar with an adjuster. They buy it in the expectation that if the same kind of workaday water loss happens during renovation that would be covered during normal business operations, the insurer will step up.
When a court embraces the reality of what the insurance product is supposed to do and reads the policy as a functioning product rather than a brittle contract locked into hyperliteral definitions, it delivers justice that matches both the expectations and the practical needs of real people.
I have heard this same basic concept from another respected source. Bill Wilson stated in his book that all insurance adjusters and insurance agents should own and study, When Words Collide:2
Doctrine #4: The purpose of insurance is to insure.
While it may sometimes seem that an adjuster is looking for a way out of a claim, that’s not where the search for coverage begins or should begin. As many courts have said, the purpose of insurance is to insure. Consumers and business owners don’t buy insurance in order to not have coverage (though when you shop on the basis of “fast, easy and cheap,” that’s all too often what you get).
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So, going into the analysis of a claim or coverage question, the presumption is that what happened is covered.
Cases like TRB Investments and Wilson’s book remind us how important it is to read insurance policies in the full context of their purpose. When the policy is treated as the risk-transfer tool it was sold to be, coverage decisions follow the logic of how the real world works, not the narrow path of linguistic gamesmanship. That is Stempel’s point, and it is one worth revisiting as often as courts forget it.
I sometimes enjoy debating my insurance defense colleagues about the interpretation of insurance policies. It is obvious that some see their line of work as getting their clients out of coverage and paying less, no matter what. Some insurance company adjusters see their work in this light as well. It is important for all of us to remember that the first purpose of insurance is to protect against the risk of loss. That is what makes it such a valuable product, which I suggest is needed as much before a loss as after.
Thought for the Day
“Common sense is genius dressed in work clothes.”
— Ralph Waldo Emerson
1 TRB Investments, Inc. v. Fireman’s Fund Ins. Co., 40 Cal. 4th 19 (Cal. 2006).
2 Bill Wilson, When Words Collide: Resolving Insurance Coverage and Claims Disputes, (2018).