1 in 10 homeowners have this exposure – is it properly insured?

The most recent statistics lists 9.4% of households rent a storage unit and this percentage does not include how many of those actually rent more than one unit and short term renters that rent a unit for a month or two while moving.

Bottom line, this is a quickly growing industry that many customers are utilizing. As you will note, without the proper coverage, there are some definite uninsured exposures.

When consumers rent a storage unit, they are probably under the impression that they have the proper coverage. Yes, the homeowners policy does provide coverage, typically for 10% of the personal property limit in the HO policy. Obviously based on that limit, there may not be sufficient coverage. For example, customers with a $50,000 personal property limit would only have $5,000 coverage. Is this enough?

However, there are some other differences that folks renting storage units may not be aware of that are quite significant. Issues such as:

– Most HO policies do not provide coverage for losses from rodents or flood and certainly not for earthquakes or named storms while in storage. If coverage for these exposures is desired, it may be available through the homeowners’ carrier but at a hefty premium.

– Loss of personal property in the storage unit is subject to the HO deductible, oftentimes in the $1000 to $5000 range.

As with many other exposures (such as my recent posting on watercraft detailed), purchasing a stand-alone policy for this exposure may be the best approach. Coverage including the exposures mentioned above is available through organizations such as SnapNsure (www.snapnsure.net – underwritten by Hanover). These policies provide broader coverage yet are inexpensive with low deductibles compared to HO policies. The deductible for all primary policies up to $25,000 coverage is only $100.

Although this coverage is sold direct to the public, it might be an opportunity to educate your customers and to provide them with a resource to more fully address this exposure.

Continue Reading: 1 in 10 homeowners have this exposure – is it properly insured?

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“Stated value” vs “Agreed Value” – aren’t they the same?

No, they are not.

Which one is better? Let’s take a look…

Here is the traditional definition of “Stated Value”:

“In the event of a total loss we will pay the Stated Value or the Actual Cash Value, whichever is less.” Note the word “less”. This essentially allows the carrier to adjust the loss on an ACV basis.

To get the protection desired, the better approach is to secure coverage on an Agreed Value basis. How does that work? It is often referred to as “short and sweet”. The carrier and the insured reach an agreement on the value of the item (car, boat, etc.). In the event that the insured item is damaged or destroyed, the insurance company pays out the agreed upon value – no more, no less.

To secure this level of valuation, it may be necessary for you (as the agent) to look at specialty carriers. This is often one of the areas where the coverage form is better.

“Stated Value” is definitely not the same as “Agreed Value”. This is probably one of the big misunderstandings in the insurance world.

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Is coverage for watercraft sufficient under a HO policy?

Now that it looks like winter is over and we are going right to summer, you might have some clients looking to put their boats in the water for some fun and relaxation. When insuring watercraft, there are typically a couple of options. The HO policy can be endorsed (provided the watercraft meets the guidelines) or the watercraft can be insured on a separate stand-along policy. Is there a difference in the coverages? Yes, and actually many of the differences involve areas that occur with some degree of frequency.

Issues such as:

  • Waterskiing (or tubing). If this is a potential scenario, be aware of some limitations on the HO policy. If one of the water-skiers gets hurt and needs some medical attention, there is a good chance that the Med Pay coverage under the HO policy will not respond.
  • Pollution. If gas is accidentally spilled into the water (yes, it happens), there will probably not be any coverage under the HO policy for this “pollution” exposure.
  • Towing / wreckage. If the watercraft is involved in an accident that results in the boat needing to be towed to shore, this is not a peril insured when the coverage is placed on the HO policy. In addition, wreckage removal is not covered by most HO policies.
  • Valuation for physical damage. The options under a HO policy are more limited typically only providing coverage on an ACV basis. Securing the valuation on an “Agreed Value” basis is definitely preferred.

So how do you secure coverage for the above issues? A good best practice is to provide your client with a proposal for a stand-alone watercraft policy. The premium will be higher but that is because the coverage is better.

If you are thinking “the client will never spend the extra premium”, quite honestly, this is not your call. It is best to provide the client with options and explain the difference and the value of a stand-alone policy. Thus, when dealing with your clients on their watercraft exposure, provide them with options to consider. Not only will this allow your client to make an educated decision, it will also serve as an element of protection should an uninsured loss occur.

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Include specimen policies with the proposals

Have you ever had a situation where your client had a loss before the policy was even issued? It happens, and it actually happened to me back in my days as an underwriter. My account (a big printer) had a Mercedes stolen before I even had the policy issued.

What if your client had a loss before the policy was issued and the claim was denied due to some exclusion in the policy? The client could contend that they had no knowledge of what the exclusions were and might go so far as to state that they would not have purchased the coverage had they known all of the exclusions.

Would they have a case? The agency might have somewhat of a defense if they had listed the exclusions on the proposal. Unfortunately, the titles provided to some of those exclusions might not provide enough clarity as to what the exclusion actually excludes.

Listing the exclusions (or at least some of them) is a good idea. However, if you are going to list some exclusions, it might be best to include the following statement: “Exclusions include but are not limited to the following”.

There are a couple of additional approaches.

        Include specimen policies with your proposal. This might be cumbersome to do this for all coverages, but it is especially important on coverages (such as E&O, D&O, Cyber, EPL, etc.) where there can be significant differences among the various carrier forms.

        Include a statement in the proposal that “Specimen policies are available upon request”. This is extremely easy to implement and probably won’t result in many clients actually asking.

 As I have noted in probably every E&O class I have ever taught, at the time of a problem, there are two buckets. One bucket for the client which would include all of the issues that favor the client. The other bucket is for the agency and would include those issues favorable to the agency. The goal is for the agency to have as many items in their bucket as possible. Including specimen policies or even the statement that “specimen policies are available upon request” would be an item that would be in the agency’s bucket.

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Does your proposal include this?

Let me ask you a question:

When you provide a proposal to a client (current or prospective), what information are you using to develop that proposal? While there may be some information you can gather from websites or other third party sources, aren’t you, in reality, using the information that the client has provided you?

What if that information is not totally correct? If the policy is written and the client suffers a claim, this is often the time when the carrier discovers some inaccuracies in the application. Based on the degree of those inaccuracies, the carrier may look to deny the claim based on a position that “they never would have written the account had they known the correct information”. Your agency’s position may be “we used the information the client gave us”.

There are some defenses that could be used but obviously only if they were in place.

One of those defenses should involve requiring (not just requesting) the client review the application before affixing their signature. Using a statement such as “I certainly believe that I have taken down correctly the information that you provided me so I would like to have you sign the application. However before you put your signature on the document, please review the application and advise me if there are any answers noted that you do not feel are accurate”.

Another approach to provide some degree of protection in the event of a problem is to make it very clear to the client that you used the information they provided you. To assist in protecting your agency in the event of an issue, give thought to including a statement such as:

In evaluating your exposures to loss, we have been dependent upon information provided by you.  If there are any other areas that need to be evaluated prior to binding of coverage, please bring these areas to our attention.  Should any of your exposures change after coverage is bound, such as your beginning new operations, hiring employees in new states, buying additional property, etc., please let us know so proper coverage can be discussed.

Following some simple steps could make a world of difference if a dispute arises.

 

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More School Districts Buying Active Shooter Insurance

As noted in the attached article written by Noor Zainab Hussain and Suzanne Barlyn that appeared on insurancejournal.com on March 21st, recent events have resulted in more schools seeking additional protection. While this article focused on schools securing this coverage, there are other venues that should also consider this coverage such as malls and  theatres. This coverage should be discussed with every client that presents this type of exposure.

“Insurance broker Paul Marshall can count on his phone ringing in the aftermath of a school shooting. Since the Feb. 14 shooting at a Florida high school, where 17 people were killed and more than a dozen injured, seven South Florida school district have bought $3 million worth of “active shooter” coverage…”

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In 5 States, 20% or More of Drivers Have No Insurance; Countrywide Average Increases

Every day, we get behind the wheels of our car and venture off to work, vacation, run errands, etc. Personally, there is an expectation that every car I see has at least the minimum limits of liability insurance but as you will note in the attached article, this is hardly the case. This is one reason why discussion with your clients on UM / UIM is so critical.

This is an excerpt from an article that appeared on insurancejournal.com on March 15th. The article includes the statistics for every state. How does your state compare?

“Nearly one in eight U.S. motorists is driving around uninsured and putting insured drivers at greater risk in the event of an auto accident, according to a study. If you were in an accident you can seek compensation for a Coral Springs area car accident.

The study, directed by the Insurance Research Council (IRC) and co-sponsored by The Hanover Insurance Group, found that 13 percent of all U.S. motorists were uninsured in 2015, up from 12.3 percent in 2010, following a seven-year decline from a high of 14.9 percent in 2003.”

Continue Reading In 5 States, 20% or More of Drivers Have No Insurance; Countrywide Average Increases

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How does your E&O policy address “subpoenas”?

One only needs to access the news on virtually a daily basis to hear the reference to a subpoena. It is vital that agencies (especially management) be aware that the word subpoena can find its way into the insurance agency world. What exactly is a subpoena?

Wikipedia provides the following definition:

“A subpoena or witness summons is a writ issued by a government agency, most often a court, to compel testimony by a witness or production of evidence under a penalty for failure. There are two common types of subpoena:

  1. subpoena ad testificandum orders a person to testify before the ordering authority or face punishment. The subpoena can also request the testimony to be given by phone or in person.
  2. subpoena duces tecum orders a person or organization to bring physical evidence before the ordering authority or face punishment. This is often used for requests to mail copies of documents to requesting party or directly to court.”

How do E&O policies reference subpoenas? Most often, one will find the reference in the definition of a claim with language such as: “Claim” means a written demand or written notice, including service of a subpoena….”. 

So, what does this mean if your agency is served with a subpoena? Chances are the subpoena is a request for records or documents of some type. While this may sound harmless, this is not a matter to be taken lightly so the best approach is to:

Contact your E&O carrier immediately !

The reason to do so is that there is a good chance that your agency could be party to an E&O claim in short order. By contacting your E&O carrier, 1) you are satisfying a condition in your E&O policy and 2) you are going to benefit from the experience and expertise of that carrier.

What is the downside in failing to contact your E&O carrier? Unfortunately, this has occurred from time to time and has resulted in the agency potentially not getting the necessary coverage when a lawsuit or E&O claim develops. If the agency were to receive a subpoena and not notify the E&O carrier, when an E&O claim develops, the carrier could take a position of “denied for late reporting”. 

So, when your agency receives a subpoena, take it seriously. Make sure that all staff are aware of the importance of this issue so that they can take the appropriate action.

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Does an E&O claim always involve a BI or PD loss?

First, let’s start out with the definition of a claim as defined in an E&O policy. While the exact verbiage may vary from one E&O carrier to another, the general flavor is the following:

“Claim” means a written demand or written notice, including service of a subpoena, “suit” or demand for arbitration, received by one or more insureds which alleges a “wrongful act” or asks for money or services.

The words that are in quotations (” ..”) are those that are defined in the E&O policy, typically under a Definitions section.

In the vast number of E&O claims, the issue generating the E&O claim involves a BI or PD loss that the client has suffered that is not covered or not fully covered by the client’s coverage. However, there are circumstances that don’t involve a BI or PD loss that every year seem to result in a dispute and then eventually an E&O claim against the agency.

One of the more common deals with the client not realizing (or not wanting to admit) that their General Liability or Workers Compensation policy was “subject to audit”. The client purchases a WC policy and then, for one reason or another, the audit performed at the end of the policy year reveals payroll numbers exceeding what was initially projected. An additional premium is generated as a result of the audit and the client balks at paying the AP because “they were not aware that the policy was subject to audit”.

What is the best practice for agents to implement to address this issue? It is definitely suggested that the proposal that includes policies that are “subject to audit” contain a statement that speaks to this policy condition. Also, when the policies are delivered (personally, mailed, e-mailed, etc.), it is a good idea to reference the “subject to audit” condition in print and verbally as well. The implementation of these practices should provide the agency with a solid defense should the client contend that they were not aware of this policy feature.

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Get it in writing !

It is certainly a frequent occurrence in the insurance world for clients, business or personal, to look to reduce their limits. The reason could involve issues such as cost or possibly the client feels the limits are more than their exposure.

There are various ways the client may request the reduction. When the client sends the agency some form of written communication, these should provide a strong defense should a problem arise down the road. The communication can be in the form of a letter or e-mail where there is clear evidence of who is making the request and what the actual request is. Instructions on a cocktail napkin probably will not hold much weight in the court room.

Oftentimes, the client request is either made during a face-to-face meeting or via a phone conversation. These scenarios create a potential greater degree of E&O exposure without the proper level of documentation.

If the request for a reduction is made based on an agency proposal, many producers will simply ask the client to note the reduction on the proposal and initial the request. While this may be common, it is not the best approach. If the request is noted and initialed, it is highly suggested that the producer either promptly verify / memorialize the request in writing back to the client or produce a revised proposal indicating the limits the client is agreeable to and looking for the client to sign accepting the proposal as presented.

Bottom line, the request should be in writing either from the client to the agency staff member or vice versa essentially memorializing the request.

As noted in the following article, written by Judy Greenwald and published on www.businessinsurance.com on 12/19/17, this issue was clearly a key element in the E&O matter of Alliant vs Cammeby’s Management Company LLC. Alliant was acting as an insurance broker for the New York-based Cammeby’s firm.

“A federal appeals court has refused to overturn two jury verdicts that found Alliant Insurance Services Inc. negligent for reducing the flood sublimit on a New York property owner’s policy before Hurricane Sandy, and finding it was liable for $20 million.”

Continue Reading Get it in writing !

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