IRMI Update—Issue #37
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
March 19, 2002
In This Issue
Colleague,
A subscriber to IRMI's reference services recently faxed me an interesting
additional insured endorsement. It was the standard ISO CG 20 10 endorsement
for use on the polices of contractors, but the insurer—a big name in the construction
marketplace—had typed in some extra clauses that substantially reduced the scope
of coverage provided to the additional insured. The endorsement had been attached
to a certificate of insurance as required by the construction contract.
On first blush, nothing about this very restrictive endorsement looked out
of the ordinary because it had all the trappings of the standard CG 20 10. Only
a diligent reviewer would notice the four extra sentences. Our subscriber wanted
to know if I thought this was deceptive and possibly even fraudulent.
I do not think anyone at this company intended to be deceptive. It is simply
easier and faster to modify a standard endorsement form than it is to start
from scratch. This is a common industry practice. However, while there was probably
no intent to deceive, the reality is that this probably would deceive many people
and could lead to many problems for the insured, the insurer, and the agent/broker.
This makes me think that insurers should adopt a practice of somehow clearly
indicating when a standard form has been modified to alert the reader to be
extra diligent.
So what do you think? Is issuing modified standard policy forms and endorsements
without including a warning on the form or endorsement deceptive or even fraudulent?
Have you encountered problems from this practice? Should insurance best practices
include adding a warning to modified forms as standard procedure? [See reader comments.]
Have a great day!
Jack
Jack P. Gibson
President
IRMI
Maintain Control of Premium Audits. I've encountered
many instances where an insured calls or writes stating their recent audit is
incorrect. And in too many cases, when I ask two key questions, I get negative
answers. Those two questions are:
- Were you present when the audit was conducted so you could answer questions
about your business that the auditor may need to ask?
- Did you ask the auditor to leave you a copy of his/her audit worksheet
so that you would have it at hand to refer too if questions arise?
No one would dare ask a CPA to do their books without being available to
answer questions, or give a CPA all their records to prepare their tax return
— and then not ask for a copy of the return! Yet every day businesspeople allow
insurance auditors to enter their businesses, spend hours going over their books
and records, and never ask them to divulge and explain the results of their
investigations. They then allow them to leave the premises without providing
copies of their documentation.
Workers comp and general liability insurance premiums are major expense components
that can substantially affect businesses' bottom lines. It's worth spending
time working with the auditor to assure his/her conclusions are correct. Ask
questions, lots of them. And demand a copy of the audit before he or she leaves.
By: Jerry Fulmer
Audit Manager
Cameron M Harris & Co.
Charlotte, NC
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