Underwriting, Risk Assessment, and Claims Handling
Underwriting decisions
The underwriter's job is to decide how to accept risk. The outcomes are: insure as requested; insure subject to requirements that must be cleared; insure subject to exceptions for matters not cleared; insure for a reduced amount, with a coinsurance or deductible provision; or decline. Underwriting judgment weighs the property type (vacant land, new construction, condominium, farm), the transaction type (foreclosure, estate, divorce, bankruptcy, power of attorney, trust, corporate merger, relocation company), and the parties' history. Fraud red flags deserve emphasis: a rapid resale (flip) at a large markup, cash-out refinancing shortly after purchase, a seller who is not the record owner, reluctance to provide identification, forged or remotely notarized signatures, an unverifiable payoff, a suspiciously low price, or a purported power of attorney from an absent owner.
Claims handling
When a claim is reported, the insurer reviews whether the alleged matter is a covered risk, on Schedule B-II, or excluded. The insurer's duty to defend begins immediately, is broader than the duty to indemnify, and can require defense of claims that ultimately fail. Defense counsel is selected under the policy (often insurer's choice with insured's consent), and the insurer may issue a reservation of rights. The insured owes duties of prompt notice, proof of loss, cooperation, and consent before settlement. Payment of a loss reduces the policy amount; defense costs do not. The insurer acquires subrogation rights against culpable third parties but not against its own insured. Deductibles, coinsurance, and arbitration provisions may all affect the outcome.
Traps and rule of thumb
Questions often describe a matter listed on Schedule B-II and ask whether the carrier must defend - it need not. Another trap: the insured settles the dispute without notice and then asks for reimbursement.
Rule of thumb: tender early, tender everything, and let the insurer decide coverage - delay and self-help can forfeit rights.