Your View: Alerting Insureds and Brokers of Policy Modifications
April 2002
IRMI Update readers provide their opinion
of insurers issuing modified "standard" policies or endorsements without indicating
they have been altered. By far, the consensus was that—while perhaps not fraudulent,
depending on intent—doing so was simply not good business practice. Suggestions
for pointing out modifications were plentiful.
by Jack P. Gibson
IRMI
We received nearly 200 responses to Jack's editorial in IRMI Update
37 asking readers their opinion of insurers issuing modified "standard"
policies or endorsements without indicating they have been altered. By far,
the consensus was that—while perhaps not fraudulent, depending on intent—doing
so was simply not good business practice. Suggestions for pointing out modifications
were plentiful:
- Increasing the point size or changing the font of modified verbiage.
- Adding "mod" to the policy/endorsement number.
- Changing the edition/form number completely
- Providing a written notice to the agent/broker/policyholder.
- Placing a "Modified" stamp or sticker on the endorsement/policy.
- Providing a cover page highlighting coverage changes.
Several readers voiced their belief that such sleight-of-hand modifications
were in fact illegal. They suggested the practice could be a violation of copyright,
a case of bad faith, a misrepresentation under a state's insurance code or other
Consumer Protection Act, a breach of the implied covenant of good faith and
fair dealing, or a violation of most states' property and casualty filing laws
and "60-day advance notice" rules.
Other voices sounded an opposite chorus, however, citing overworked underwriters,
CSRs, and insurer processing units. After all, they chimed, isn't it the obligation
of all insureds, brokers, agents, risk managers, etc., to read—word for word—the
policies and endorsements provided? Isn't failing to do so not only an abdication
of good business practice but a failure of duty and common sense? Is it really
the insurers' fault when policyholders fail to read their policies and endorsements?
Whether this practice is seen as outright deception or simple miscommunication
is obviously a matter of opinion. Perhaps the question we should ask is not
whether the practice is deceptive but how can we as an industry solve the problem?
What do you think? Below are some reader comments, edited for length.
- We all (carriers, brokers, agents, risk managers, insureds) rely on
ISO to set "standards." These standards should be protected property. If
one wishes to build or take away from its original form as occurs frequently,
then the ISO identifier should be removed completely.
—C. Dwayne Shelton, Account Executive, First Arkansas
Insurance, Little Rock, AR
- As for the ease of amending the standard form, I reject that theory.
It's not that much wording to put on a piece of paper and it's not that
hard to add the words "material used from" to the ISO wording at the bottom.
Yes Jack, they knew exactly what they were doing. Deceit, fraud, and infringement.
They know they can get away with it. If this wasn't insurance, this story
would be on Dateline as a feature story.
—Mark A. Leininger, Opinions, Ltd.
- The form has a space for a typed entry and it has wording that refers
to the typing above and if none, refer to the policy. I would think anyone
that received an attachment with a certificate should deem that attachment
important enough to review and read. Any entry that was on the form should
be obvious and not need to be highlighted or flagged. I don't see this as
modifying and endorsement. I see it as completing an endorsement that can
be used one of two ways. That is why the warning you refer to is already
at the top of the page saying THIS ENDORSEMENT CHANGES THE POLICY. PLEASE
READ IT CAREFULLY. I don't think it needs to be there twice.
—Mike Sawyer
- CSRs are expected to handle more and more volume every year. Although
our agency believes it is incumbent on the marketing department, CSR, and
the agent to notice any gaps in coverage, it would be almost impossible
for us to catch a change in the standard policy writing without microscopic
inspection of each policy. A page showing any deviations from ISO provided
by the companies would be most helpful and in today's age of technology
it should not be that difficult to achieve.
—Jack Laseter, Marketing Director, Bryson & Company
- I believe you are wrong in automatically assuming there is no intent
to deceive on the part of the carrier. Since the 1970s, one of the tenets
of our company has been, "When dealing with insurers, never ascribe to cupidity
what can be better explained by stupidity." Meaning, of course, that people
make silly mistakes that are not necessarily contrived to do harm. Having
said that, however, I am sad to report that we see a change developing.
Underwriters and experienced claims people no longer interpret coverage.
Large claims are automatically controverted and sent directly to attorneys
who, as paid advocates, immediately seize on every excuse they can find
for denial of the claim.
As a result, it is my opinion that a fine industry
that has existed heretofore to relieve its clients of uncertainty and risk
now fails to do so. In fact, it seems that the purchase of insurance now
injects an additional element of risk: Will I ever collect?
—Robert N. Hughes, CPCU, ARM, MAE, DACFE, President,
Robert Hughes Associates, Inc., Richardson, TX
- Less than 2 years ago, I was underwriting professional liability with
a very large carrier. I was new to the SPL product line and certain brokers,
with over 20 years in the industry individually, were pressuring me to consolidate
two of the insured's policies into one form. My boss approved this. Months
passed after legal had drafted it and it was sent to the broker. One day
they called me enraged saying that I had 'tricked' them by not pointing
out that the conversion changed the media liability form from an occurrence-based
form to a claims-made form. I didn't point this out because it seemed so
obvious. Both had never bothered to read the form or contemplate the consequences
of combining the two into one form. … At what point do business professionals
take responsibility for the quality of their work?
—David Williams, Special Commercial Lines
- Your suggestion raises several questions that, I think, could lead to
less certainty and more litigation. If notice is required, do you propose
notification for every modification? That appears burdensome. Or only material
modifications? What constitutes a modification to the standard form? Why
rely on someone else's interpretation of what constitutes a modification?
Does the recipient impliedly accept the change unless the recipient challenges
the change within a reasonable time?
—Tim Jagielski
- I don't believe modifying forms is fraudulent; the carrier's processing
unit just sends out what they're told to. The underwriters are overworked
and can't notify the brokers of changes. If the carrier prepared a "Notice
of Change" requiring that also be sent out with the new form would certainly
help the endorsement "rise" to the top of the risk manager's "In box" for
scrutiny. However attaching a form change to a certificate of insurance,
without a formal endorsement, is sloppy work on the part of the carrier
and deceptive. Vigilance on the part of the broker and risk manager is needed
to be certain all endorsements are read and compared to the policy to assure
no surprises when a claim is submitted.
—Patrick Genovese, Senior Mgr. Insurance & Risk Programs,
Focal Communications Corporation
- I think it is imperative that any changes be pointed out and explained
in the greatest detail possible, word for word, sentence by sentence, in
a different color ink, attached to a dollar. This could also state the carrier's
intent, for future misunderstandings.
—Alison Collier, G.E. Young & Company, Wheat Ridge,
CO
- In 20 years, when a policy containing this type of endorsement is litigated,
no one will remember what the intent was; all that will remain is the black
print on the white paper and a whole bunch of questions.
—Richard Rudolph, Ph.D., CPCU, ARM, Principal Consultant,
Seaver Rudolph & Associates, St. Charles, IL
- An analogy would be to go to a restaurant and order an O'Doul's. The
waiter brings an open bottle of O'Doul's partially poured into a glass.
Fine. Right? Wrong, he didn't tell you that he added a shot of 100 proof
vodka to the otherwise nonalcoholic beverage. The results could be disastrous;
same with the endorsement. By adding the sentence, they have changed what
is the expected modification to the actual policy form. I think they should
put "Revised" or "Modified" at the top of the page next to the name and
following the form number and version date. Additionally the schedule of
forms should be modified as well. This should only be done by the company
or authorized representative and not the broker or insured.
—Josh Doty, Account Manager, USI Insurance Services
Inc., Norwalk, CT
- It has been my experience in business that perception on the part of
the client is far more important than the intent to deceive or not to deceive
on the part of the insurance company. Once the insured has a negative perception
of a carrier, the relationship is called into constant question and can
even have a negative impact on the client-broker relationship, as many insureds
still believe "we" represent the carrier and not the insured.
So that
there can be no doubt about EITHER perception or intent the carrier, in
good faith, should in some way draw specific attention to modifying language
that negatively impacts coverage. After all, we all know they would toot
their own horn loud and CLEAR if they were EXPANDING coverage.
—Thomas W.Davis, CIC, President, Davis American,
Ltd., Oak Brook, IL
- The modified endorsement speaks for itself and was not deceptive. The
certificate holder will not be heard to complain, because their problem
was due to the fact that they did not read the attached endorsement, or
if they did, they failed to act on it.
—Rob Ellis
—James McGowan, Director of Safety, Irby Construction
Company, Jackson, MS
- If a standard endorsement is modified without some warning there is
a good chance a court of law will use the original wording of the standard
endorsement. At best, large legal fees will be incurred defending the added
wording. In the past, when we used manuscript AI endorsements, we attached
the endorsements to our certificates so that the party requesting the endorsement
could read the endorsement to see that it was a manuscripted endorsement.
Even then, we eventually quit using the manuscripted endorsements due to
all the litigation it caused.
—William S. McIntyre IV, CPCU, ARM, Chairman, American
Contractors Insurance Group, Inc., Dallas
- I think any time you change a printed form to something that it isn't,
the insured should be notified and made to sign off on it. Otherwise we
will all have headaches.
—Ivan B. Brendler