Coverage Concerns
Documenting declined coverage recommendations
A simple notation minimizes uninsured loss problems
By Roy C. McCormick
Agents must educate their clients regarding the scope of coverage as well as fundamental exclusions in a policy, so that these insureds will understand and be willing to accept additional coverage options. If a client rejects these coverages, it is important to obtain a “not wanted” statement, initialed by the insured.
A legal case that clearly illustrates this point is Savannah Laundry and Machinery Company v. Home Insurance Company, decided by the Georgia Court of Appeals. A kitchen worker was injured when a boiler door blew off a steam cooker two years after the insured had repaired the equipment. It was found that an improper nut had been installed to secure the boiler door. The repair firm’s liability insurer denied liability on the basis of the policy’s completed operations hazard exclusion.
In the litigation that followed, testimony confirmed that the insurance agent had pointed out in detail the extent of coverage and had emphasized the absence of coverage for the completed operations and products hazard. The insured had signed a statement that he understood the pertinent hazard was excluded from coverage. The verdict was in favor of the insurer.
Large commercial and institutional insureds are familiar with loss of income insurance and include it in their insurance programs. But many smaller buyers, although they are protected for property loss, either are not familiar with loss of income protection or, for some reason, do not carry it. They are the ones who may not survive a devastating loss.
Widespread flooding also calls attention to the scope of the problem. Adjusters hear many complaints from insureds whose homeowners policies do not cover damage caused by flooding. Many say that they were never advised that their policy did not cover that particular peril or that coverage is available under the National Flood Insurance Program.
Despite industry efforts to make it clear that homeowners policies and various commercial coverages do not cover loss caused by flooding, the problem continues. The NFIP sponsors “can’t be missed” television commercials and announcements in newspapers and magazines stressing these exclusions in homeowners and commercial policies and make it clear that protection is available under the federal National Flood Insurance Program. In addition to flood coverage, additional needed insurance may include protection such as earthquake coverage and umbrella liability insurance.
Another area that has often resulted in serious consequences for the insured, insurance company and insurance agent is the lack of completed operations coverage in general liability insurance carried by contractors and service businesses When completed operations is not included, it should be made clear to the insured that the basic liability protection will not apply to an occurrence arising from operations after a job had been completed.
With respect to personal insurance, the importance of documentation of coverage declined by an insured is significant with respect to “Special Limits On Certain Property” under Coverage C (unscheduled personal property) of homeowners policies. The limit for theft of unscheduled jewelry and furs, $1,000 or other specified amount, is an example. The limits on other types of personal property are reasonable because they are geared to the average risk. There is general agreement that additional premium is warranted for property of exceptionally high value.
When a homeowners insured is found to have such “special limits” personal property of high value, it is important to bring the exposure and basic coverage limitations to his or her attention and suggest appropriate scheduling recommendations. If the insured does not want the optional protection, his or her initials alongside a “not wanted” statement serve as an important record that could avoid later dispute or dissatisfaction.
Hobby-type collections of various kinds can develop into valuable investments. Baseball cards, for example, are highly prized and are prime targets for insurance scheduling. And, of course, art objects warrant special treatment. It is important that owners of such property keep records of purchase and secure periodic appraisals. Valuable paintings are prime candidates for scheduling. In addition to purchase records and appraisals, an insured should keep information about the artists, including where and when they lived.
Communication with insureds can bring about better under-standing of policy coverage and can reveal exposures that require additional coverage or policy modification. It also provides the opportunity to obtain acknowledgement of coverage rejections.
The author
Roy C. McCormick is a contributing editor with The Rough Notes Company.