Insurance Coverage Specifications in the Hard Market

December 2002

It's important to cover all the potential areas of loss your firm faces, even if insurance is not available or affordable. Peter Polstein reviews coverage extensions you should consider.

by Peter M. Polstein

Once again, I am gratified to have heard from a number of readers, in response to my article, “What Constitutes a Full Underwriting Submission.” A number of readers have asked about coverage issues, as well as the theory that asking for coverage which underwriters may or may not grant might be an exercise in futility in this marketplace.

Attempting to cover all the potential areas of loss, irrespective of how diminished the possibility of claim may be, is never an act of futility, especially when the insured has that one loss that ends up being covered. As a final segment to the discussion of submissions, let’s think about coverage specifications.

The Named Insured

Preferred wording looks like this:

(Lead Named Insured), and all wholly owned and/or financially controlled entities as now or hereafter may be constituted, including any partnerships or joint ventures, where this coverage is required by exposure or written or oral contract.

Wording of this nature can be applied to commercial liability, commercial automobile, or umbrella insurance policies, but obviously, because of statutory constraints, would have to be modified for the workers compensation contract. Undoubtedly, the broadest you could have agreed to would be in the range of the following:

(Lead Named Insured), and all wholly owned and/or financially controlled entities as now or hereafter may be constituted, including partnerships and joint ventures where the Named Insured has financial control in excess of 51%.

As for coverage extensions, the following are suggestions by contract form.

Workers Compensation

• Federal Employers Liability Act (FELA), either on an “if any basis” or with identified payroll, where the insured has any exposure emanating from railroad hazards. This could include workers on or about sidetracks, as well as supervisory personnel on or around rolling stock.
• Voluntary compensation with a limit of $1 million.
• Worldwide coverage including repatriation.
• United States Longshore and Harbor Workers Compensation Act (USL&H), either on an “if any basis” or with identified payroll, where the insured has any exposure on or around water. USL&H has been found to be in effect, even for employees working around a facility, who have no usual exposure to the water, for example, office personnel of a shipyard.
• Unintentional Errors and Omissions. You never know when you inadvertently forget a material fact, which should have been included in the risk making decision.
• Knowledge of and Notice of an Occurrence. Either name an individual with responsibility for this or try to simply have the endorsement or wording provide blanket coverage. As an example, if the risk manager is named as respondent and a loss is reported to a supervisor in the field, who fails to make a timely report, the insurer is not in a position to issue a reservation of rights letter for “late reporting under the terms and conditions of the contract.”
• Foreign Voluntary Compensation.
• Stop gap. In case the insured has an employee within a fund state, without knowledge of the insured.
• Notice of Cancellation. Should be extended to at least 60 or 90 days, with the exception of nonpayment of premium.

Commercial Liability*

• Limits. Make sure that the primary limits are sufficient in relation to the insured’s exposures to be able to negotiate excess or umbrella coverage at “reasonable” premiums, whatever that means in this marketplace!
• Care, Custody, and Control. If you cannot delete the care, custody, and control exclusion, at least be sure that the contract included fire damage legal liability with a limit of no less than $1 million.
• Employers Legal Liability. Add whenever possible to the primary policy, with separate limits.
• Pollution. If the insurer has the capacity to include pollution, be sure it provides whatever coverage is necessary for the insured exposure, including on premises, off premises, and in some cases named sites where the insured may send material for disposal. Further, if the insured has a retroactive date under the current policy, and remarketing is in the submission, be sure it coincides with the prior contract.
• Contractual. Amend the contractual provision to provide coverage for personal injury on a blanket basis for “All contracts and agreements”
• Fellow Employee Exclusion
• Blanket Broad Form Vendors
• Waiver of Subrogation
• Unintentional Errors and Omissions
• Knowledge of and Notice of Occurrence
• Extended Reporting Period (ERP). If claims-made coverage is provided, negotiate as long an ERP as possible, without additional premium, then be sure to understand the ERP and the additional premium consequences.
• Liquor Law Liability. Hosts liquor is in the contract form, but any insured that has a party with a cash bar, for example, could well have a problem. Obviously, a liquor store, restaurant, etc., has the exposure.
• Worldwide Coverage. This is especially necessary if the insured has foreign exposure, and seeks to obtain at least worldwide coverage with suits brought in the United States for incidental exposure.
• Automatic Coverage for Newly Acquired Entities. Seek to obtain this coverage on either a blanket basis or subject to report within 90 days.
• Cancellation. A minimum of 60 days is good, but where possible, seek 90 days except for nonpayment of premium.

Commercial Automobile

• Limits. A caution again as to limits: Be sure that they are sufficient to permit excess or umbrella underwriters to provide their coverage. Also, where the MCS-90 endorsement is in effect, be sure that the primary insurer can provide those limits or have the excess or umbrella insurer provide them.
• Medical Payments. Limits will be a function of the exposure and risk.
• Hired, Leased and Non-Owned Automobile Liability
• Knowledge of and Notice of Occurrence
• Unintentional Errors and Omissions
• Personal Injury Protection (PIP); No Fault and Uninsured Motorists. Limits will be a function of exposure, risk, or statutory requirements.
• Additional Insured—Lessors. Seek blanket coverage where and when required.
• "Automobile.” Any “automobile or conveyance licensed for the road” will be considered a covered vehicle whether owned or not.
• Broad Form Drive Other Car
• Fleet Automatic. This is important if you have a fleet.
• Interstate Commerce Commission or Public Utilities Commission Filings. This may be required.
• MCS-90 Endorsement. Again, obtain as required.

Umbrella Liability

• Limits become a function of exposure, and in this marketplace, pricing. However, do not sacrifice limits because of pricing; a significant uninsured or partially insured loss pales in the view of pricing.
• Underlying Coverage. Irrespective of whether umbrella liability or excess liability coverage is being placed, seek wording to the effect of:

Coverage under this Policy #________ shall be no less broad than all Terms and Conditions of the Underlying policies as listed below:

List the policies, coverage type, carrier and policy number.

• Cancellation. Try to obtain 90 days, except for nonpayment of premium.
• Miscellaneous. There may well be other endorsements applicable to coverage, much of which will be reflective of the exposures and risk, e.g., pollution.
• Inception Dates. Heed a word of caution about umbrella and excess placements: Be sure that the inception dates are concurrent, or have insurers issue endorsements agreeing nonconcurrent placement.
• "Following Form.” You must review whether coverage “pays on behalf” or “indemnifies” the insured. There is an obvious difference, and it must be explained to your client. Don’t ever get caught using the expression “the policies are basically follow form.” In either your deposition or trial, you will certainly be asked to explain exactly what you meant.

Deductibles and Self-Insured Retentions

Finally, be sure that you and your insured understand fully the difference between these two and whether they are applicable to coverage. Be sure that the terms are concurrent. If a deductible includes allocated expenses or excludes them, all contracts should do as well. Be sure that the client understands that self-insured retentions (SIRs) apply in almost every instance. Make them responsible for obtaining counsel, and in some cases, the insurer will name particular counsel for defense. Deductibles utilized on workers compensation contracts are quite different from SIRs, where in most every case, they will be a requirement that the insured file for self-insurance.

Conclusion

These are wonderful weapons in the fight to maintain reasonable premium levels. There have been lengthy articles, if not books, written on this subject if you want more details. It is imperative to simply understand the application and use of these weapons and their consequences.

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^*Note that some insurers may use older general liability forms or nonstandard general liability forms that do not cover certain risks, such as contractual liability, broad form property damage, or incidental medical malpractice. If there is a possibility that the markets being approached will use such general liability forms, modify your specifications to require the necessary coverages.

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