Understand the differences in how jewelry and other items can be covered
Mind the Gap
By Marc McNulty, CIC
Our Mind the Gap column previously kicked off by focusing on the ISO HO 00 03 homeowners policy limitations and exclusions that pertain to home-based businesses. While only a percentage of your clients and prospects may have that particular exposure, almost all of your clients and prospects will be affected by the topic of this month’s edition: the homeowners policy Special Limits of Liability.
The unendorsed ISO HO 00 03 policy presents a number of opportunities to trip up young agents if they aren’t careful. For starters, contents coverage (Coverage C) is provided on a named peril basis. You are truly doing your clients a disservice if you don’t add the HO 00 15 endorsement (or equivalent) onto the policy so that contents are covered on an “all-risk” basis to match the manner in which the dwelling and other structures are covered.
This is a very easy issue to fix and can often be remedied by adding what I call a signature insurance company endorsement onto the homeowners policy. By signature endorsement, I mean one of the branded endorsements your insurance carriers offer that package multiple coverage enhancements into a single endorsement—typically for a flat premium charge. These will often bundle “all-risk” coverage for contents along with replacement cost coverage for contents and, in addition, usually increase a number of limits found in the Special Limits of Liability section of the HO 00 03.
If you don’t ask the right questions of your clients and prospects, you might find that your proposed coverage will fall short in the event of a loss—especially when it comes to the items spelled out in the Special Limits of Liability section.
On the surface this sounds great and it usually is. However, if you don’t ask the right questions of your clients and prospects, you might find that your proposed coverage will fall short in the event of a loss—especially when it comes to the items spelled out in the Special Limits of Liability section.
Why it matters
The homeowners policy explicitly limits coverage for items such as money, gold, silver, jewelry, firearms, watercraft, and property on the premises used for business purposes (as previously reviewed). It’s easy enough to add a signature endorsement onto the policy and think you’ve done your job since many of these limits will be slightly increased. However, if you want to do the job correctly, slow down, see how the special limits of liability tie in with the program you are proposing, and address these limits with your clients and prospects.
You can see that signature endorsements can vary greatly when you dive into the details of each one. For example, I have seen the coverage limit for money, bullion, gold (other than goldware), and silver (other than silverware) range anywhere from $200 up to $1,000 with our agency’s carriers. I’ve also seen the limit for theft of jewelry, watches, and furs range from $1,500 up to $10,000.
Let’s pause here and think about that for a moment. That type of range is too large to ignore and can have significant ramifications if you don’t address it with your clients. I understand that it can be tedious to review every possible homeowners policy limitation and exclusion with your new accounts (and renewal ones for that matter), but most insurance companies have coverage highlight sheets available online that list all of the enhancements provided by their signature endorsements. Print those out (or pull them up on your PC or tablet), review them while you are discussing your home and auto quotes with your prospect, and ask them if they feel any of the Special Limits of Liability are inadequate.
How to address the limitations
Let’s assume you have a new prospect who likes the program you are proposing but is concerned with a couple of the Special Limits of Liability, namely the gold/silver limitation along with the jewelry limitation. These are two distinct issues and can be addressed in several ways.
We’ll start with the gold/silver limitation, in particular, items that aren’t goldware or silverware. Some insurance companies—but certainly not all of them—will allow you to specifically schedule bullion, gold, silver, and other precious metals. Others will allow you to increase the Special Limits of Liability for these items for an additional premium charge. Do yourself a favor and check with each of your insurance companies to familiarize yourself with the types of solutions that they offer for situations like this.
Next we will address jewelry, as this offers even more opportunities to trip up the young agent. When in doubt, encourage your clients to schedule jewelry items on an inland marine policy or jewelry floater as part of their homeowners policy. Don’t rely on what the HO 00 03 offers or what signature endorsements offer because too often they are inadequate. It’s not unusual at all for an account to have an engagement ring that is valued at $5,000 to $10,000. Add a wedding band, one or two necklaces, and a nice pair of earrings to that account and you have a recipe for disaster if you don’t properly address the exposure.
Suppose your client agrees with your assessment and needs you to cover approximately $15,000 in jewelry. How will you do it? The answer to that question depends on how your client wants to cover their valuables and how well you educate them on their options.
Know the differences
Jewelry can typically be covered in one of four manners, and it’s critical that you know how each will respond in the event of a claim:
Actual Cash Value
Replacement Value coverage sounds pretty straightforward, right? Since you are almost always insuring your clients’ homes and contents on a replacement cost basis, this method would, by default, appear to make the most sense. However, depending on the endorsement that is used, you might run the risk of providing your client with actual cash value coverage instead.
To elaborate, let’s examine the language in the ISO HO 04 61 (05 11) Scheduled Personal Property Endorsement. In the Loss Settlement section of this form, there are sections for Fine Arts, Postage Stamps or Rare and Current Coin Collections, and then Other Property. Since jewelry would fall under the Other Property section, here is how that reads:
c. OTHER PROPERTY
(1) THE VALUE OF THE PROPERTY INSURED IS NOT AGREED UPON BUT WILL BE ASCERTAINED AT THE TIME OF LOSS OR DAMAGE. WE WILL NOT PAY MORE THAN THE LEAST OF THE FOLLOWING AMOUNTS:
a) THE ACTUAL CASH VALUE OF THE PROPERTY AT THE TIME OF LOSS OR DAMAGE;
b) THE AMOUNT FOR WHICH THE PROPERTY COULD REASONABLY BE EXPECTED TO BE REPAIRED TO ITS CONDITION IMMEDIATELY PRIOR TO LOSS;
c) THE AMOUNT FOR WHICH THE ARTICLE COULD REASONABLY BE EXPECTED TO BE REPLACED WITH ONE SUBSTANTIALLY IDENTICAL TO THE ARTICLE LOST OR DAMAGED; OR
d) THE AMOUNT OF INSURANCE.
I’m sure you caught the key item here—the endorsement will pay no more than the least of those amounts listed! This could put you in a very difficult position at the time of a loss, as jewelry losses often come with an emotional attachment and your clients will want a fair settlement.
To address this, consider blanket jewelry coverage for smaller collections of jewelry and agreed value coverage for more expensive items.
Not all insurance companies offer blanket coverage, so be sure to check with your underwriters first. However, companies that do offer this typically offer it on a pretty solid coverage form. For example, here is blanket coverage wording from one of the companies we represent:
Blanket Coverage—For a covered loss to scheduled articles with blanket coverage, “we” will pay the amount required to repair or replace the article, whichever is less, without deduction for depreciation. “We” will pay the difference if the restored value is less than the market value immediately prior to the loss. But, “we” will not pay more than the maximum limit per item or set for loss to any one article or set, all minus the Deductible if applicable. The maximum limit per item or set is $5,000. “We” will not pay more than the blanket Limit of Insurance, minus the Deductible if applicable, for all articles insured under the blanket limit that are lost or damaged in a single occurrence.
Note that there is no deduction for depreciation and, as a bonus, the company will pay the difference between the restored value and market value in the event the restored value is less.
Finally, let’s examine the type of valuation that will usually cause the least amount of hassle: agreed value. This type of loss settlement can be endorsed via the ISO HO 04 60 form (or equivalent). The loss settlement language is straightforward:
We will pay, for each article or property designated in the Schedule, the full amount shown in the Schedule, which is agreed to be the value of that article or property. At our request, you will surrender that article or property to us if not lost or stolen.
In plain English, this means that if the item listed in the jewelry schedule is lost or stolen under this form, the insurance company will simply write a check for the limit of insurance listed for that item.
Under the HO 04 61 form, the insurance company could potentially write a claim check for less than the scheduled limit of insurance if it found the same item at a lower cost. The HO 04 60 eliminates that possibility and ensures that you and your client know exactly how much will be paid out in the event of a loss. The only caveat here is that you will need to stress to your clients that current appraisals should be used to properly determine the value for the scheduled jewelry. If they base the value on an old appraisal, they run the risk of not having enough insurance to replace the item(s) in the event of a loss.
Assisting your clients with proper insurance coverage isn’t overly difficult when you take the time to address their exposures and determine how to properly insure them. Familiarize yourself with your insurance companies’ signature endorsements as well as how the Special Limits of Liability can be enhanced.
Whenever a claim occurs that involves property addressed within the Special Limits of Liability, it’s a great feeling to know that your client is properly covered because you did your job well. You might even be lucky enough to get a “thank you” from your client after the claim is resolved. n
Marc McNulty, CIC, is vice president of insurance operations at The Uhl Agency in Dayton, Ohio, and has been with the agency for 15 years. He divides his time among sales, marketing, technology and operational duties. Marc also serves as chairman of NetVU’s Young Professionals Chapter. You can reach Marc at firstname.lastname@example.org