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.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.
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