101 Common Commercial Lines Coverage Gaps To Avoid - July …
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101 Common Commercial Lines Coverage Gaps To Avoid
Transcript of 101 Common Commercial Lines Coverage Gaps To Avoid - July …
101 Common Commercial Lines Coverage Gaps To Avoid
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IRMI®
InsightsInsurance and Risk Management Perspectives Available Only from IRMI
101 Common Commercial LinesCoverage Gaps To Avoid
IRMI Research Analysts July 2019
Oneofthebestwaysforaninsuranceagentorbroker to lose a client or face an errors andomissions(E&O)claimistofailtotailoracus-tomer’s insuranceprogram to itsexposure toloss. Similarly, coverage gaps that result inuninsured claims become career-limiting cri-sesforriskmanagers.Forthisreason,IRMIsetout to identify101commoncoveragegaps tohelp you avoid the embarrassment that theymaycause.The following list of coverage gaps anderrors was first compiled from readerresponses posted in the IRMI Group onLinkedIn in response to an editorial by JackGibsoninIRMIUpdate#252.(IRMIUpdateisafreeriskmanagementnewsletterdeliveredviae-mail.)The IRMIresearchanalysts thenedited, expanded, and enhanced the list.Theserepresentsomeofthemostcommon—and dangerous—mistakes that are madewhen placing commercial lines insurance.Use this document as a handy checklist toavoid these mistakes in the insurance pro-gramsyoubuyorsell.We have included links to five IRMI knowl-edgebaseswhereyoucanfindexplanationsof
thesegapsandhowtoclosethem.Ofcourse,you must subscribe to the knowledgebasesforthelinkstofunction(seesidebaronpage2). IRMI also offers another product thatfocusesonhelpingyouunderstandandelimi-nate these coverage gaps: an online coursecalled 101 Commercial Lines Coverage Gaps&How toCloseThem.This course has beenapprovedforinsurancecontinuingeducation(CE) in all states. It provides a discussion ofeachofthecoveragegapsincludedinthefol-lowing checklist, so that you can recognizethemandtailorthecustomer'sinsurancepro-gramasneededtoaddresseachgapthatyouencounter. This CE course on closing cover-agegapsisagreattrainingtoolforagentsandbrokers.About the Authors
This list was compiled by the IRMI edito-rial team with input from members of theIRMI Group on LinkedIn. View biogra-phies of our editorial team members onIRMI.com.
Copyright 2019, International RiskManagement Institute, Inc.
IRMI® Insights
AllPolicies
1. Specifyinganimproper“firstnamedinsured”onapolicy2. Includinganincompleteorinaccuratelistofinsuredsonthedeclarationspage
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Many of the knowledgebases availablefrom IRMI address topics covered by thischecklist. However, to keep the checklistuncluttered,welinkedittoonlyfiveofourmostpopularknowledgebases.✦ CommercialAutoInsurance(CAI)✦ CommercialLiabilityInsurance(CLI)✦ CommercialPropertyInsurance(CPI)✦ ProfessionalLiabilityInsurance(PLI)✦ IRMIWorkersComp(IWC)To use the buttons, you must be a sub-scribertotheparticularknowledgebasetowhichthegapislinkedoneithertheIRMIOnline or ReferenceConnect platform(fromVertafore),andyoumustsign inonthe platform prior to using the link. Eachlink identifies the applicable knowledge-baseandplatformusingtheabbreviationsshowninthelistalongwith“IRMIOnline”and “RefCon.” If you are uncertain as towhether your firm subscribes on yourbehalf, contact IRMI through our websiteorbyphone(800–827–4242)andourcli-ent services team will be happy to helpyou.
CommercialAutoPolicy
3. Improperlyinsuringprivatepassengerautosthatshouldbeinsuredbyapersonalautopolicyinabusinessautopolicy(orviceversa)4. Inaccuratelyassigningcoveredautosymbols5. Notcoveringexecutivesorotherswhoareprovidedwithcompanyvehicleswithdriveothercarcoveragewhentheyhavenopersonalautopolicy(includingno-faultcoverage,whereapplicable)6. Failingtoprocurehiredandnonownedautoliabilitycoverageforinsuredsthatdonothaveanyownedvehicles7. Failingtocompleteandfilewiththeinsurerappropriateuninsured/underinsuredmotoristsselectionorrejectionforms
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https://www.silverplume.com/sponline/SPSage.aspx?cmd=doc&id=IRM08208#jd_item_one_of_the_declarations
IRMI® Insights
8. Failingtoidentifymobileequipmentsubjecttomotorvehiclelawsandcoveritunderabusinessautopolicy9. Allowingmultiplecomprehensivecoveragedeductiblestoapplytovehiclesparkedorgaragedtogetherratherthanusinganaggregatedeductible10. Failingtoprovidehiredautophysicaldamagecoverage11. FailingtoprovideliabilityandphysicaldamagecoveragetoemployeeswhohireautosintheirownnamesforbusinessuseCommercialGeneralLiability
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12. Relyingoncommercialgeneralliabilityfirelegalliabilitycoveragetoinsureleasedpremiseswhencommercialpropertyinsuranceisneededtosatisfytheobligationsinthelease
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13. Thelackofanemployeebenefitsliabilityendorsementinthecommercialgeneralliabilitypolicy(orcoverageinaseparatefiduciaryliabilitypolicy)14. Inattentiontoretroactivedateandextendedreportingperiodonclaims-madecoverageendorsementsattachedtooccurrencetriggercommercialgeneralliabilitypolicies(e.g.,employeebenefitsliability)15. Failingtoprovideadditionalinsuredstatusasrequiredbycontract16. Lackofcoverage,orinadequatecoverage,forjointventuresandnewlyacquiredcompanies17. Relyingonthecommercialgeneralliabilityorumbrellapolicytocoverprofessionalliabilityexposures
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IRMI® Insights
18. Failingtoarrangecoverageforleasedworkersinstatesthatdonotbringleasedworkerswithintheworkerscompensationsystem19. Failingtoarrange“lossofelectronicdata”coverageresultingfromphysicalinjurytotangibleproperty20. Failingtoaddcoverageforcontractualassumptionsofpersonalinjuryliabilityclaimsstemmingfromfalsearrest,detention,orimprisonmentbyindemnitorsthatprovideincidentalsecurityservices21. Failingtoendorsecoverageinconnectionwithherbicidesandpesticides,asrequiredbymanualrules,forinsuredsengagedinlawncare,fumigation,pestcontrol,andcropsprayingservices22. Failingtoarrangecontractualliabilitycoverageforholdharmlessagreementsentailedinworkforrailroadsornearrailroadproperty
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WorkersCompensationPolicy
23. Failingtoprovideotherstatesinsuranceundertheworkerscompensationandemployersliabilityinsurancepolicyforincidentalexposuresinotherstates24.NotensuringthatallapplicablestatesarelistedforcoverageunderItem3.Aoftheworkerscompensationpolicy(e.g.,addinganemployer’snewpermanentoperations)25.Notincludingthevoluntaryworkerscompensationendorsementtoad-dressclaimsbroughtbyworkers(e.g.,volunteers)towhomnowork-erscompensationactmayapply26. Failingtoestablishwhoisresponsibleforinsuringleasedworkerswhenaprofessionalemployerorganizationisutilizedorfailingtofollowuptoensurethatinsuranceplacementsaremadeinaccordancewithjurisdictionalandcontractualrequirements
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IRMI® Insights
27.Notutilizinganemployersliabilitycoverageendorsement(stopgap)toprovidecoverageforemployersliabilityclaimsbroughtbyemployeesinmonopolisticfundstates(NorthDakota,Ohio,Washington,andWyoming)28. Failingtoprocureaforeignvoluntaryworkerscompensationendorsementtoprovidecoverageforendemicdiseaseandrepatriationcostsofemployeesworkingabroad(aswellasmedicalandwagebenefitswhenextraterritorialprovisionsofthestateofemploymentdonotapply)29.NotincludingtheLongshoreandHarborWorkers’CompensationActCoverageendorsement(onan“ifany”basis)inthepoliciesofemployersthathaveapotentialbutremoteexposureundertheAct30.Notincludingthemaritimecoverageendorsement(onan“ifanybasis”)inthepoliciesofemployersthathaveapossiblebutremoteexposureundermaritimelaw
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31. FailingtocoveremployeesworkingoverseasatU.S.governmentfacilitiesorforthebenefitofthearmedforceswithaDefenseBaseActendorsementUmbrellaLiabilityPolicy
32. Failingtocompletelyandaccuratelyscheduletheunderlyingpoliciesintheumbrella33. Purchasinglowerprimaryorunderlyinglimitsthanarerequiredbytheumbrella34.Notincludingallpartiesinsuredbytheprimarypolicyasinsuredsintheumbrella35. Improper“followform”provisionsthatturnanumbrellapolicyintoastand-aloneexcesspolicy
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36. Failingtodiscoveradditionalorbroaderexclusionsintheumbrellathanintheprimary37.Usingnarrowerdefinitionsintheumbrellathanareincludedintheprimarypolicies38. Strictexhaustionlanguageintheumbrellapolicythatrequirestheactualpaymentoftheentireunderlyinglimitbeforetheexcesscoverageapplies39. Potentiallyviolatingtheumbrellapolicy’saggregatelimitprerequisiteviaanunderlyingpolicytermthatisdifferentornonconcurrentwiththeumbrellapolicyterm40.Nocoverageforpunitivedamageswherepermittedbylaw41.Dropdownclauseoftheumbrellapolicyislimitedtoclaimsthatarecoveredbytheumbrella
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42. Failingtosecureumbrellacoverageoverforeigngeneralandautoliabilitypolicies43. Failingtoensurecoverageforinsuredversusinsuredclaims
ProfessionalandErrorsandOmissionsLiabilityPolicies
44. Inadequatelimitduetoinclusionofdefensecoveragewithinthelimit45. Anerroneousdescriptionofprofessionalservicescontainedintheapplicationforcoverage,negatingcoveragefortheinsured’sactualservices46. Lackoforfaultycoordinationofinsuringagreements,exclusions,anddefinitionsbetweentheprofessionalliabilitypolicyandthecommercialgeneralliabilitypolicy
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IRMI® Insights
47. Failingtoobtaincoverageforpredecessorfirmexposures48. Coveragedenialscausedby“absolute”exclusionsthatuse“arisingoutof,involving,orinanywayrelatedto”wording,ratherthan“for”language49.Nocoverageofpunitivedamagesduetoanexclusionorabsenceofa“mostfavorablejurisdiction”provision50.NotprovidingtailcoverageforclaimsmadeagainstprofessionalsfollowingretirementMiscellaneous,Environmental,andCyberLiabilityPolicies
51. Failingtocoverenvironmentalliabilityexposuresarisingfromownedpropertyorconstructionoperations
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52. Failingtocoverpollutionliabilityarisingfromtransportationofpollutants53. CompaniesthatmarketorconductbusinessovertheInternetfailingtopurchaseliabilitycoverageforcopyrightandtrademarkinfringementordatabreach54. Companiesinpossessionof“personallyidentifiabledata”orhealthdatafailingtobuycoveragefordatabreaches55.NotprocuringnonownedaircraftliabilityinsurancetocoverexposuresarisingfromuseofaircraftbyexecutivesoremployeesManagementLiabilityandCrime
Policies
56. Privatelyheldcompaniesfailingtobuydirectorsandofficersliabilityinsurancewithoutadequatelyevaluatingtheexposuretoloss
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IRMI® Insights
57. Improperlyusingretroactivedatesandextendedreportingperiodsinclaims-madepolicies58.Notaddingcoveragetothedirectorsandofficerspolicyforexecutivesservingonoutsidecharityorassociationboards59. Failingtoincludehigh-levelnon-officers(e.g.,corporatecomptroller,humanresourcesdirector)asinsuredsinthedirectorsandofficerspolicy60.NotconsideringthepurchaseofSide-Adirectorsandofficerscoverage,especiallyforoutsidedirectors61. PurchasingaSide-Apolicywrittenonastraightexcessratherthanonadifference-in-conditionsbasis62. Failingtoobtaindirectorsandoffi-cerscoverageforprioractscommit-tedatanewlyacquiredsubsidiary
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63. Buyingadirectorsandofficerspolicywitha“limited”ratherthana“broad”severabilityprovision64. Buyinganexcessdirectorsandofficerspolicythatprovidescoverageonlywhentheunderlyinglayer(s)isexhaustedbyinsurerpayment(ratherthanincludingcoveragewhenpaymentismadebyaninsured)65.Notamendingthe“damages”definitioninthedirectorsandofficerspolicytoincludecoverageforcriminalinvestigationcosts66.Notremovingoramendingthefailuretomaintaininsuranceexclusionfromthedirectorsandofficerspolicy67. Selectingadirectorsandofficerspolicywith“infact”ratherthan“finaladjudication”languagewithintheintentional/criminalactsexclusion
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IRMI® Insights
68.Notprovidingproperdirectorsandofficerscoveragefordirectorsandofficersofforeignsubsidiaries69.Notaddingthird-partydiscrimina-tioncoveragetoemploymentprac-ticesliabilitypolicies70.Notaddingdefensecoverageforwageandhourclaimstoemploy-mentpracticesliabilitypolicies71. Failingtoaddcoverageforleasedemployeesorindependentcontractorstoemploymentpracticesliabilitypolicies72.Notamendingorremovinglimitationsindirectorsandofficersandfiduciaryliabilitypolicyformsfor“tagalong”claims73. Failingtoaddcoveragefortheftofcustomers’propertybytheinsured’semployeestothecrimecoverage
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74. Failingtocovervolunteersorcontractorsas“employees”undercrimeinsurance75.Notaddingfundstransferorcomputerfraudcoveragetothecommercialcrimepolicy76.Notpurchasinganadequatelimitofinsuranceforcrimecoverage,especiallyemployeetheftcoverage77. Failingtonametheinsured’semployeebenefitprogramsasinsuredsunderthecrimepolicyand,ifnecessary,addEmployeeRetirementIncomeSecurityAct(ERISA)compliancelanguagetocomplywithERISAbondingrequirements
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78. Failingtopurchaseadequatelimitsofinsurancebyusingaccountingbookvalueastheinsurablevalueofcoveredproperty,over-relyingonpropertyvalueestimatesfromsoftwareprogramsusingminimal
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IRMI® Insights
informationabouttheproperty,orothercauses79.Usinglessthanoptimalvaluationprovisions(e.g.,actualcashvalueinsteadofreplacementcost)80.Usingspecificratherthanblanketlimitsofinsurance,especiallywhenaninsuredhasmultiplelocations81.Usingapersonoccurrencelimitationofliabilityofmarginclausethatessentiallyconvertsblanketlimitsintospecificlimits82.Notusinganagreedvalueprovision(sometimescalledanagreedamountclause)orfailingtorenewitannuallyonamulti-yearpolicy83. Failingtoincludealllocationsforwhichcoverageisneeded
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84.Usinginadequatesublimitsforunnamedlocations85. Failingtoconsiderthecostofdebrisremovalwhendetermininginsurancelimitsorfailingtosecureanadequatesublimit86. Failingtopurchaseordinanceorlawcoverage87. Failingtopurchasetimeelementordinanceorlawcoverageortoconsideradditionaltimeforrestorationwhenselectingtimeelementcoveragelimits88.Notpurchasingcoverageforlossfromfloodandearthquake89. Failingtoarrangeequipmentbreakdowncoveragefordirectdamagetoequipment,consequentialspoilage,andresultinglossofincome
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IRMI® Insights
90.Notadequatelyinsuringvacantpropertyduetovacantpropertylimitationsinthecommercialpropertypolicy91. Inadequatelyinsuringpropertyun-derconstruction,renovation,orex-pansionbyrelyingonthecommer-cialpropertyinsuranceforminsteadofpurchasingabuildersriskpolicy92.Notinsuringpropertyshippedbycommoncarrier,ontheassumptionthatthecarrierwillcoveralllosses93.Overlookingtheresponsibilityforpropertyduringinlandandoceantransitandwhilestoredatwarehouses94. Failingtoarrangecoverageforrentedorborrowedequipment95.Notinsuringbusinessinterruption,rentalvalue,leaseholdinterest,andextraexpenseexposures
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96. Failingtocoverbusinessinterrup-tionarisingfromutilityinterruptionthatoriginatesawayfromthein-sured’spremises,includingoverheadtransmissionlines97.Notarrangingcoverageforcontingentbusinessinterruptionexposuresarisingfromdamagetopropertyoftheinsured’skeysuppliersorcustomersorneighboringbusinessesthatattracttheinsured’scustomers98. Failingtoconsiderthepossibilitythatitcouldtakemorethan1yeartoreplacedamagedpropertyandresumeoperationswhenchoosingtimeelementcoveragelimits99. Failingtounderstandthepenaltiesfornotsubmittingreportsontimeorfailingtoarrangeforincreasedlimitsofinsurancewhenneededunderareportingform100. Notinsuringfinishedstockonasellingpricebasis
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IRMI® Insights
101.FailingtoprocureextendedperiodofindemnitycoveragewhenarrangingbusinessinterruptioncoverageforanorganizationthatwillexperienceaslowresumptionofsalesfollowingashutdownIRMICPI
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