Coverage issues arise when the policy holder and the insurer disagree as to whether a policy covers an event or as to the meaning behind the language or important terms in the policy itself. This area of insurance law focuses on contract interpretation and fact gathering. Many of these cases arise from complex fact patterns in the fields of medicine, engineering or technology, such as computer fraud and environmental clean ups. Coverage cases affect not only the parties to the action, but also how the insurance industry does business.
Waiver, Estoppel and the Parol Evidence Rule
Let’s first look at some common doctrines that courts have used when interpreting the language of insurance contracts. Waiver in contract and insurance law is the intentional relinquishment of a known right. A waiver may be expressed or implied. Estoppel is a similar doctrine that prevents an insurance company from making a legal argument because its misrepresentation or misleading conduct caused the insured to enter into an agreement or otherwise suffer a legal detriment.
A common example of a waiver occurs when an insurance company accepts a premium payment for future coverage with the knowledge that the insured has breached the insurance agreement. A court may infer a waiver of the company’s right to end the agreement because it chose to continue collecting premiums rather than terminate the agreement. An example of estoppel may occur when an insurance company misrepresents the existence of coverage to stop an insured from obtaining coverage from another company. If the insurer then denies the validity of the coverage, a court may hold that the insurance company is “estopped” from denying the validity of the policy.
These doctrines are powerful tools in courts’ arsenals to avoid injustice. The parol evidence rule, a contract law doctrine in its own right, can limit the effects of waiver or estoppel. The parol evidence rule holds that written agreements are presumed to be complete and that oral addendums to written agreements are generally not binding. This rule may limit a court’s inference of a waiver or estoppel by limiting what it can enforce to what is reasonably consistent with the written insurance agreement.
Still, the rule may not be applied when justice may require that it be ignored. In Harr v. Allstate Insurance Co.,Herman Harr kept business inventory in the basement of his residence. His homeowner’s policy excluded coverage for business merchandise. In response to his inquiry about purchasing coverage for the business inventory, an Allstate agent said they could cover him for up to $7,500 and stated he was “fully covered”. Later, a water pipe burst and damaged the business merchandise in the home. Harr’s claim was denied on the grounds that the policy did not cover business inventory. On appeal, the New Jersey Supreme Court ruled that Allstate was estopped from denying coverage because of the agent’s statement that Harr was “fully covered,” causing his reasonable reliance. When an insurer misrepresents coverage before or at the inception of the contract, and the insured reasonably relies on the statement, the insurer is estopped from denying coverage even when the policy’s language did not initially cover the damage.
Reasonable Expectations Doctrine
The reasonable expectations doctrine has often been used by courts in contract or coverage interpretations to protect the reasonable expectations of the insured. In Kievit v. Loyal Protection Life Insurance Company, for example, the insured purchased an accident insurance policy providing coverage for accidents but excluding coverage for death by disease. The insured developed Parkinson’s disease as a result of an accident. The court held the loss was covered even though the policy’s language excluded diseases, because it was reasonable for the insured to expect that a disease that results from an injury would be covered.
There have been varying levels to which scholars and courts have advocated the reasonable expectations doctrine. At one end is famous torts Professor Robert Keeton’s argument that the reasonable expectations doctrine should apply whenever it is necessary to deny an insurer an “unconscionable advantage” and when necessary to protect the objective reasonable expectations of applicants and beneficiaries. Other commentators have argued that the reasonable expectations doctrine provides that clear language in a policy cannot be overridden by objective reasonable expectations.  A compromise interpretation is that the doctrine can be applied when the policy language is ambiguous. 
Unclear Coverage Cases
Computer Fraud Cases
Let’s take a look at some coverage issues the industry is following. We will start with two cases representative of our modern world addressing computer fraud and what activities are actually covered under the language of the computer fraud provisions. In Medidata Solutions v. Federal Insurance Co., fraudsters manipulated Medidata’s email system, allowing them to send messages that inaccurately appeared to come from a high-ranking member of Medidata’s organization. The emails directed Medidata employees to transfer company funds, which company employees did. Medidata was initially denied coverage on the grounds that the email attack was not the proximate cause of the loss – the employees’ transfers were. They argued that the policy covered only losses stemming from the entry of data or change of data or program logic of a computer system. The court ruled that the emails were the proximate cause of the company sustaining financial loss. Although the employees themselves had to act to effect transfers of money, this does not sever proximate cause. As such, the loss must be covered under the insurance agreement.
In American Tooling Center v. Travelers, American Tooling Center outsourced some of its work to a Chinese company, YiFeng, who emailed ATC invoices to customers. In March of 2015, a YiFeng impersonator convinced ATC to wire payments to the fraudster’s account. ATC sought recovery from Travelers under its computer fraud provision. Travelers denied the claim claiming the event did not fall under the “computer fraud” provision of its insurance agreement. The Sixth Circuit Court of Appeals found that the loss was covered because ATC immediately lost its money when it made the transfer to the impersonator. There was no intervening event to break the causal chain or proximate cause of the loss. Travelers also argued that the incident was covered by a policy exclusion that stated that the policy would “not apply to loss resulting… from the giving or surrendering of money, securities, or other property in any exchange or purchase… with any other party not in collusion with an Employee.” The court concluded that the transfer to the impersonator was not “in exchange for anything” from the impersonator. Thus, the exclusion did not apply. Also, in accordance with the rule of contra proferentem, which means construing the ambiguous contract provision against its drafter, Travelers, the transfer does not fall within the exception.
Environmental Hazard Provisions
Determining coverage for damages that occur over many years, especially when the coverage was only in effect for part of that time, can be complex. In KeySpan Gas East Corp. v. Century Indemnity Co., the New York Court of Appeals ruled that a liability insurer only needed to cover environmental clean-up costs that were allocable to the time that the coverage was in effect. In that case, environmental contamination (hazardous waste leeching into the groundwater from Keyspan’s gas plants) occurred slowly over several decades in a “gradual” but “continuous” manner. While Keyspan was insured by Century for liability for environmental damages for the past several decades, much of the environmental damage had probably occurred before the coverage was in effect (in fact, the damage may have started as early as the 1880s). The Court ruled the insurer liable only for the pro rata share of the damage likely caused while the policy was in effect, even though, before that time, this sort of liability insurance was unavailable in the market. In other words, it did not matter that it was not Keyspan’s fault that it was uninsured; the insurer was only responsible to indemnify for what happened under its watch.
In Pitzer College v. Indian Harbor Insurance Company, Pitzer purchased an insurance policy from Indian Harbor to cover expenses caused by pollution-related damage. When the college was constructing a new dormitory, it became aware of dark soil requiring clean-up. The College promptly hired clean-up companies to remedy the issues with the soil. The policy required the insured to give notice to the insurer before taking remedial action, but also allowed for coverage in an emergency situation so long as the company was immediately notified after the emergency. Pitzer did not notify Indian Harbor until six months after it discovered the darkened soil. Indian Harbor denied coverage on the basis of late notice and failure to obtain Indian Harbor’s consent to remedy the situation as it did. Pitzer sued Indian Harbor. The trial court found for the insurer, concluding that “Pitzer’s remediation work did not fall within the emergency exception, but that, even if it did, Pitzer was not entitled to rely on the exception because it failed to “immediately thereafter” notify Indian Harbor of the emergency.”
Advertising Injury Provision
In Country Mutual Insurance Co. v. Vibram,the shoe making company, Vibram, was sued for unlawfully obtaining a trademark for a shoe named after a marathon champion, Abebe Bikila. Vibram had a liability insurance policy from Country Mutual Insurance, which provided coverage for “advertising injury.” Vibram argued that it suffered an advertising injury in accordance with the policy. The insurer argued that Vibram did not suffer an injury from an advertising idea, but because it illegally used the name of a celebrity. The case was dismissed on other grounds, but the action indicates the viability of this cause of action.
Certain actions are not insurable no matter what a policy may state. Courts have rendered the following polices unenforceable: (1) policies in violation of state statute: (2) policies in violation of public policy; or (3) policies involving some prohibited activity. For example, attempting to insure against gambling losses where gambling is illegal is unenforceable. These cases are pretty straight forward as actions that are prohibited are clearly defined by statute.
The cases that are more difficult to determine are those cases that involve policies with language that may violate public policy or be injurious to the public good. Here, the court’s concept of “public good” becomes relevant, allowing for the courts to regulate the insurance industry. Another factor that varies state-by-state is the source for public policy. Some states take conservative views while others take liberal views. Policies involving prohibited activities change as our world evolves and different insurance products become available. Let’s take a look at some of these issues. Can General Motors insure its reputation and receive a payout after it suffers negative press when it recalls vehicles after findings of faulty ignition switches? How to assess the damage is part of the problem. However, some policies are available that allow a company to insure, for example, damage to a key figure’s reputation in the company. The key here is detailing and specifying the limited set of circumstances under which the insurance will be paid out. Insurance companies cannot offer protection against any type of company reputational risk from whatever event.
Another area is regulatory risk. Regulations can change overnight and be impossible to predict. For example, coal-powered plants are facing huge regulatory restrictions due to greenhouse gases being emitted into the environment. Could the plants have insured against these regulatory actions? This type of risk is next to impossible to predict or value. This problem has been looked at as mitigating the issue for the company, not necessarily transferring the risk to an insurance company. Still, properly assessing coverage values remains problematic. Another evolving area of coverage is insuring against a trade secret breach. It is evident that companies may find it challenging to find insurance companies that will protect it from the disclosure of its trade secrets. Courts may look at whether the company took reasonable precautions to secure the information in question before determining that a policy covers the disclosure.
Political risk is another risk certain global companies face, for which they may not be able to obtain coverage. For example, the loss of company assets as the result of foreign government actions or acts of war. Even if companies can find these types of policies, they will have many exclusions and they will require the company to make numerous representations to the insurer throughout the term of the policy. A pandemic risk is also a threat, yet this, too, is not generally an insurable risk. The company itself will have to bear the loss of its workers due to a pandemic and thus may seek insurance to protect itself against human resources losses from these forces of nature. As with the other factors discussed in this section, the elements of predictability and determining the amount of the loss may leave the insurer struggling to devise an adequate insurance product.
It is evident that an insured should carefully review the language of a policy to be aware of potential limitations on subject matter, types of peril, amount of proceeds and coverage periods when assessing the available coverage. As with all contracts, insurance contracts can sometimes fall victim to ambiguities. Moreover, insurance coverage issues are always evolving as new insurance products are offered in the marketplace. In our next module, we look at the claims process and we segue into the nitty-gritty of insurance claims procedure.
 Robert H. Jerry II and Douglas R. Richmond, Understanding Insurance Law (Carolina Academic Press 2018).
 Harr v. Allstate Ins. Co, 54 N.J. 287 (1969). (See, however, Pizzullo v. N.J. Mfrs. Ins. Co., 917 A.2d 276, 285 (Super. Ct. App. Div. 2007), noting that the subsequently enacted N.J. Stat. Ann. §17:28-1.9 requires a more egregious standard for auto insurers.).
 Kievit v.Loyal Protective Life Ins. Co., 34 N.J. 475 (1961).
 Robert Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv L Rev 961, 967 (part 1) & 1281 (part 2) (1970).
 Robert H. Jerry II and Douglas R. Richmond, Understanding Insurance Law (Carolina Academic Press 2018).
 Max True Plastering Co. v. U.S. Fid.& Guar. Co., 912 P.2d 861 (Okla. 1996).
 Medidata Sols. Inc. v. Fed. Ins. Co., 729 F. App’x 117 (2d Cir. 2018).
 Am. Tooling Ctr., Inc. v. Travelers Cas. &Sur. Co. of Am., 895 F.3d 455 (6th Cir. 2018).
 Century Indem.Co. v. Keyspan Corp., 15 Misc. 3d 1132(A) (Sup. Ct. 2007).
 Pitzer Coll.v. Indian Harbor Ins. Co., 845 F.3d 993 (9th Cir. 2017).
 Id. at 995.
 John F. Dobbyn, Insurance Law in a Nut Shell (Thomson West 1981).
 Anne Freedman, Top Five Uninsurable Risks, Risk and Insurance (Sept. 2, 2014) available at https://riskandinsurance.com/top-five-uninsurable-risks/ (last visited Jan. 27, 2019).