Cedric E. Stephens Question: Why should one never admit liability, without the consent of the insurer if one is at fault? I am thinking about a "cut and dry case." Like losing control and crashing into a parked vehicle
-- Newpw@aol.com
Answer: This question is more about law than about insurance. It suggests that you have some moral or ethical concerns. I am an expert in neither law nor ethics. Lawyers, however, know a lot about law and very little morals! Ethicists know about their speciality, and almost nothing about insurance. So, what the heck? I'm in good company. The little that I know about insurance qualifies me to try to give you an answer.
Insurance contracts are legal documents. They operate within the legal system. Those that cover liability - like a motor policy - include important principles of law. A typical policy deals with the non-admission of liability in this way:
"No admission, offer, promise, payment or indemnity shall be made or given, by or on behalf of the insured, or any person claiming to be indemnified without the written consent of the Company..." To give "teeth," another condition points out that "The due observance and fulfilment...in so far as they relate to anything to be done or complied with by the insured ... shall be [a] condition precedent to any...payment..." In short, if you admit liability, without the insurer's say-so, you're in trouble.
The non-admission of liability is not absolute. Liability can be admitted. However, the insurer must first approve it. Secondly, the consent should be written. If these conditions are not met, the policy benefits are forfeited.
The underlying reason for the not-to-admit liability rule is founded in law. It has nothing to do with morality. Could an insurer differentiate between someone like you, a person of high moral standards, and other person of dubious character? I doubt it. Policies that provide liability coverage are linked to the law of tort. A tort is a civil [as opposed to criminal] wrong. It is also different from contract law. Under our system, the onus is usually on the victim of a tort to prove that he has suffered a wrong. This is done on the basis that the wrongdoer owed the victim a duty of care, a breach of duty occurred and injury or damage resulted. The wrongdoer is under no legal duty to admit guilt, no matter how culpable he feels.
There are also non-legal reasons why insurers enforce the rule. Insurers are custodians of the moneys of persons and companies that buy insurance. It is their duty to ensure that these funds are spent wisely to pay claims. Many disciplines are involved. Some of them include law, insurance, finance, actuarial, science, medicine, automotive engineering and accident investigations among others - in the case of motor insurance. Information from these areas has to be collected and studied before decisions are made. Were policyholders admit liability, without the input of insurers, they could end up incrimination themselves. As a result, the costting of claims would rise even more sharply. Persons with less moral fibre than you could be tempted to arrange accidents, with the aim of defrauding insurers. This is a very big problem in spite of the non-admission of liability rule.
There are those that try to beat the system. They put pressure on the timid to admit liability. They believe that forcing someone who has caused an accident to "sign a piece of paper" is like winning a Lotto jackpot. Nothing could be further from the truth. Agreements entered into "under duress" are not valid under law. So, in effect, the rule protects the "wrongdoer" and, all things being equal, the victim as well.
The ability "commandment" strikes a balance between the needs of the different groups - the victims, the wrongdoers, insurers, and society at large. Isn't this what ethics and law are all about?
Cedric E. Stephens is the founder of INSURANCE HELP-LINE, a telephone-based advisory service and co-host of Risky Business, a radio programme that deals with risks and insurance. If you need free advice, write to the Financial Editor or Mr. Stephens at aegis@cwjamaica.com
