Stripping the job of an insurance company to its basic components reveals a gritty truth: insurance companies make money by collecting more than they pay out. A successful operation depends on exercising good judgment on what risks to insure (or charging high enough premiums). Unfortunately, an insurer can also vigorously oppose attempts to obtain coverage -- a "no pay" attitude. This is a bad business practice -- particularly in states, such as Hawaii, that acknowledge the tort of bad faith -- and disregards the fact that insurance coverage was intended to be a reliable mechanism to transfer of risk.
One example of a "no pay" attitude can be depicted in Hunt Constr. Group, Inc. v. Allianz Global Risks U.S. Ins. Co., 503 F.3d 632 (7th Cir. 2007). Written by the astute Judge Posner, the facts of the case were as follows:
"Hunt had contracted with Northwest Airlines to build a major terminal facility at the Detroit airport. Heavy rains interfered with the project, causing millions of dollars of loss, including liquidated damages that Hunt had to pay Northwest for delay in the completion of the project caused by the rains. Hunt claimed that this expense was insured under the 'builders risk' policy that Allianz had issued to it, but Allianz persuaded the district court that though called "builders risk" (no apostrophe, though the term could use one), the policy is actually a "fire insurance policy" under Michigan law, which provides that a suit under such a policy "must be commenced within 1 year after the loss or within the time period specified in the policy, whichever is longer." Mich. Comp. Laws Ann. � 500.2833(1)(q). The policy itself specified no time period within which the insured had to sue."
Dryly, Judge Posner observed:
"To call the builders risk policy a fire insurance policy, and subject it to the 19 separate requirements that the statute imposes on 'each fire insurance policy issued or delivered in this state,' id., when the damage for which the insured seeks indemnification was not caused by fire, strains the ordinary meaning of the term 'fire insurance policy.' But the language of insurance contracts is not standard English, so we must press on."
The Seventh Circuit reversed the District Court. Notable is not that an insurance company would take such a tenuous argument, but that it actually was accepted by the district court.
