Dig a Little Deeper

By Bruce Hicks, CPCU, CLU

Telling it like it is

Business and personal policies fell short, but didn’t need to

The Court Decisions column is a popular feature in Rough Notes magazine, in part because the courtroom is where the promises made in an insurance contract often become real. All insurance professionals can develop “what if” scenarios, but until those scenarios are tested with an actual loss and a court decision, they remain mental exercises. This column comes from the industry expert editors of Policy Forms & Manual Analysis (PF&M). This is a knowledge base consisting of more than 15,000 pages of coverage explanations from Rough Notes Company’s digital solutions. The editors are going to dig a little deeper into one of those court decisions to identify a coverage problem, provide possible solutions or offer broader perspectives.

This Court Decisions case involved a personal vehicle and a dispute over access to coverage due to loss circumstances. Diana Metzger (Metzger) went on an errand. She purchased inventory for resale at her business, Metzger’s Country Store, LLC. She completed her errand and, as she walked through the parking lot to her personal vehicle, she was struck by a car driven by Courtney Gebben (Gebben).

Business owners generally have a high net worth and, naturally, should arrange for higher amounts of both personal and commercial protection … .

Metzger’s medical bills were more than $200,000, but Gebben only carried $25,000 in liability coverage. Metzger pursued and settled an Underinsured Motorist (UIM) claim with her personal automobile insurer. However, that policy had a $100,000 UIM limit, so she was still left with outstanding medical bills. Finally, Metzger sued her commercial auto insurer when the latter denied her claim. The former ended up losing in the initial lawsuit as well as upon appeal.

So what was particularly important about this loss? Perhaps two issues. The first is on the technical side. The injured party’s problem was the lack of available coverage to handle her huge expenses that resulted from being struck. It, frankly, demonstrated how a person can suffer mightily from bad luck that was tough to foresee. The accident occurred amid the following:

• A personal vehicle was used for a business person
• The injuries were severe and incurred as a pedestrian
• The injured party’s personal and commercial policies were written under an individual and a business entity, respectively.

From that point, technicalities then acted in a manner to deny additional coverage. The injured person, while carrying both personal and commercial auto policies, found that the personal protection (in the form of the faulty driver’s minimum limits and the injured person’s UIM limits), while available, was inadequate.

The business protection (in the form of the commercial policy) had sufficiently high limits, but was unavailable. Its protection was barred because the injured party was not occupying a described vehicle under that policy and did not meet a definition as an insured. The latter was due to the commercial policy being written under a business entity.

This scenario points out the importance of client education. Writing coverage under a given entity is driven by matching the named insured with the ownership interest in the applicable vehicle. The next, crucial action is to align protection with vehicle use. Adequate coverage would have been available if the injured party had used a business vehicle while performing work on behalf of her business.

While the first issue we mentioned was technical, the second is purely practical. It is a matter of general awareness on the part of all vehicle owners, whether personal or commercial. Accidental injuries may often involve substantial costs. Insurance policies written at minimal or low coverage limits may, for practical purposes, be useless. Limits should be higher to cover severe losses.

Business owners generally have a high net worth and, naturally, should arrange for higher amounts of both personal and commercial protection under primary policies as well as excess (personal and commercial umbrella) policies.

The author

Bruce D. Hicks, CPCU, CLU, is senior vice president, Technical & Educational Products Division, at The Rough Notes Company, Inc. He has more than 30 years of property/casualty insurance experience, including personal and small business underwriting as well as compliance duties for several national and regional insurers. Active in the CPCU Society, Bruce served as a governor of the organization from 2007 through 2010 and currently serves on its International Interest Group Committee.