By Donald S. Malecki, CPCU
A prospective client was lamenting the other day that one of the prized possessions in his workplace--a marble sculpture of a horse--accidentally was broken. When he looked at the fine arts coverage under his package policy, his lamentations increased. The breakage of fine arts was excluded. What made him even unhappier was the fact that he could have bought out the breakage exclusion for a nominal price had he known about the availability of coverage.
It was at this point that he realized the time had come when the annual summary of coverages purchased no longer was as important as a list of exclusions within the various coverage parts and the price for deleting them.
This was music to the producer's ears for at least two reasons: It was an opportunity to get creative and sell more insurance, which could increase commissions and possibly solidify the account; and it made good risk management sense to buy out certain exclusions. In fact, this approach is commonly known as CYA 101.
Of course, it takes some insurance knowledge to know why exclusions apply in the first place, and the extent to which the exclusions can be bought out either under existing coverage parts or forms or through additional policies.
General reasons for exclusions
Regardless of the insurance in question, exclusions generally exist for one of three reasons:
1. The loss or claim is not insurable. An example in property insurance is a nonfortuitous loss, such as normal settling, cracking, shrinking, or expansion. An example in liability insurance is damage to the named insured's own product.
2. The loss or claim is insurable under the existing coverage part or form, subject to an additional premium. The rationale for the exclusion may hinge on an activity or hazard (i.e., a condition that creates or enhances the chances of loss) that does not confront the majority of insureds. Examples are ordinance or law coverage, loss through foreign terrorism, and earthquake.
3. The loss or claim is insurable but only under a separate policy. For a commercial property coverage part, such exclusions include flood located in a flood plain, steam boilers, and employee dishonesty. For a commercial general liability coverage part, such exclusions include automobile liability, aircraft liability, workers compensation and employers liability, and nuclear hazard.
The producer should peruse each of a policy's coverage parts or forms and designate each exclusion as (1), (2) or (3). Wherever (2) or (3) are shown, the producer then has an opportunity to suggest the types of exclusions that can be eliminated and the approximate cost.
It is not necessary for a producer to have a checklist to figure out what coverages to suggest, although there are several good ones available. It might be better to rely on endorsements currently available in relation to the existing coverage parts.
Say, for example, that a standard ISO commercial property policy has been issued consisting, in part, of the Building and Personal Property Coverage Form. What the producer could do is to refer, for example, to Additional Covered Property Endorsement, CP 14 10, which lists certain categories of property that may be added to broaden the protection. Since they can be added, it means they are not covered.
In fact, it is sometimes better to review an endorsement used to add coverage than it is to determine if the property in question is not being covered and needs to be added. The above endorsement facilitates that effort.
This endorsement, CP 14 10, lists such property as excavations, grading, filling, foundations, underground pipes, flues, drains, and paved surfaces. Even vehicles licensed for road use can be covered. This is an especially important coverage when the insured has a so-called "terminal hazard." This quoted term refers to a situation where there is a high concentration of autos at one location as, for example, the parking area or garage where the named insured's fleet is located when employees are not using them. Picture the catastrophic exposure to loss by tornado to a large number of parked vehicles.
Another property-related endorsement to which a producer could refer is Additional Building Property, CP 14 15. What this endorsement does is add, under the covered building category, fixtures, machinery, and equipment attached to the building, but not permanently installed.
The basic crime coverage forms also provide "bare bone" forms of protection that usually need to be "beefed up" in order to give insureds better protection. Some of the many endorsements available with the commercial crime coverage part or policy are: guests' property, destruction of electronic data or computer programs, and unauthorized reproduction of computer software by employees.
Undoubtedly one of the leading subjects for discussion today in insurance circles has to do with additional insured status with reference to commercial liability insurance. Not to be overlooked, however, is the fact that crime coverage parts often need to be expanded with additional insureds. Endorsements, for example, are available to non-compensated officers as employees; volunteer workers as employees, other than a fund solicitor; or students as employees.
A cursory review of the available endorsements for use with the standard ISO Commercial General Liability Coverage Parts reveals a wide opportunity for broadening coverage at an additional cost.
It is common knowledge that employee leasing arrangements are common today. It is also widely known that how insurance is to be handled varies by contract. Currently, the standard ISO Commercial General Liability Coverage Form treats injury to leased workers as if they were regular employees. What happens if that is the not case? Fortunately, an endorsement is available to provide coverage for injury to leased workers, if the circumstances presented require such coverage.
The various commercial liability coverage parts commonly exclude pollution liability. Unless the exposure is so great that a special policy is available, perhaps it can be handled through an endorsement, such as Pollution Exclusion-Named Peril Limited Exception For A Short-Term Pollution Event, CG 04 28, or Pollution Exclusion-Limited Exception For Designated Pollutant(s).
As a general rule, exclusions do not grant or provide coverage. What they can do, such as with the foregoing two mentioned exclusionary endorsements, is to narrow the coverage part's applicable pollution exclusion so as to provide some limited coverage that may be required only after asking questions.
Some insurers offer their own enhancement endorsements. It may be a good idea to review some of these to obtain ideas about expanding protection of a client. Many insureds are in the dark about how coverage can be expanded. Sometimes insureds get inquisitive and ask. Others assume they will eventually be quizzed.
Conclusion
Selling insurance is a tough business currently. It has its ups and down and the current down period has been long and agonizing for many producers. Other producers seem to complain (which often is understandable) but continue to service their clients to the best of their ability.
The ones that are likely to be the most successful of the group are those who go the extra mile to protect themselves against allegations of errors or omission, to earn higher commissions, and to solidify a better relationship with their client.
No denying that it is difficult to solidify a relationship. The moment the insured sustains a loss that either is not covered or is denied by the insurer, the first decision may be to sue the producer. On the other hand, there have been many cases where a decision to sue the producer has been side-stepped simply because the producer has had a longstanding and helpful relationship and has not given the client the impression the producer is simply a "peddler." *
The author
Donald S. Malecki, CPCU, is chairman and CEO of Donald S. Malecki & Associates, Inc. He is an active member of the CPCU Society, serves on the Examination Committee of the American Institute for CPCU, and is an active member of the Society of Risk Management Consultants.