You Need Help to Understand Insurance
The LicataRisk Risk Advisory Breakfast (held several times a year) includes a regular segment entitled Why the Insurance Market is Like Quicksand. Why do we describe the insurance market this way? Quicksand is a hazard that is not clearly marked, and you are happily marching along a trail when, suddenly, WHAM! you’re mired in muck to the extent that, try as hard as you can, you can’t extricate yourself from it.
Some analogous scenarios from the world of commercial insurance:
The Creeping Pollution of Exclusion
A fire at your property release soot, ashes and fumes into the neighborhood, prompting abutting business owners and their employees to file bodily injury claims. You submit the claims, but your insurer says sorry, no coverage, due to the “Total Pollution Exclusion” in your general liability policy. “Pollution exclusion – surely someone is kidding !” But, no joke, many insurers have eliminated the “hostile fire” exception from the exclusion. At the same time the exception for releases from heating systems was also removed. Carbon monoxide disaster? No coverage for that either. How much notice did you receive of this evolution in the terms of your policy? There are solutions to this gap, but first you need to be aware it exists.
The Terror of Insurance Underwriting
Given the current volatile environment, you are concerned about damage to your property by terrorism. Your broker presents a proposal with a modest premium for coverage under TRIA (the Terrorism Risk & Insurance Act); you agree to pay the premium, check off “accept,” and sign the TRIA form. Well, that’s taken care of – at least we have the terrorism coverage. Not so fast! You HAVE purchased coverage for “certified” acts of terrorism, that is, acts declared by the federal government to meet the threshold to be certified. What the insurer is still excluding, notwithstanding payment of the extra premium, is “non-certified” terrorism. That latter class involves a broad range of terrorist and pseudo-terrorist activities including such events at the Boston Marathon bombing, which never was certified. Does it have to be that way? Hell no – we insist on total absence of any terrorism exclusion in return for payment of the TRIA premium.
Constantly Changing the Rules of the Game
You’re a real estate owner and you hire a contractor to do a minor repair. You obtain a certificate of insurance from the contractor designating you as an “additional insured.” You never did get around to signing a construction agreement for this small repair, but at least you nailed down the insurance protection, right? Oops, there’s an accident with serious injuries, and you submit the claim to the contractor’s insurer. You’re advised that the additional insured status is void despite the certificate. Insurance language concerning ‘additional insureds” is continually being revised and tightened by the insurers, and one of the changes is: additional insured status is only triggered if there is an underlying contract between the parties requiring the additional insured status – the policy adopts the outside agreement by reference. This is one of MANY additional insured gaps that the industry has created by their incessant changing of policy language, to the negative, over the last ten years or so.
Try to recall the times your broker mentioned these types of issues – (no policy was ever issued without such problematic terms). Maybe the best advice/disclaimer your broker ever gave you was in the cover letter when they said “read your policy.”
A commercial insurance purchase is a contract negotiation. A handshake with your broker is not going to protect you. Make sure you do your due diligence.
Apr 21, 2015