Do a lot of contract drafters still wear tie dyed clothes, style their hair long and straight, and think it's cool to take mind altering drugs and wander through cemeteries? Why is it that so many contracts still require insurance policies and endorsements from the 1970s? The 1986 commercial general liability policy included the contractual liability endorsement, the broad form property damage endorsement, and "x,c,u coverage" within its standard terms and no longer provides for a "combined single limit" for the coverage, yet you still see all of this required in contracts. This is probably my biggest pet peeve, and it presents a huge potential problem for contracting organizations.

Requiring out-of-date insurance coverages results in an immediate breech of contract on the one hand since it is impossible to strictly comply with it. On the other hand, the fact that is impossible to satisfy may give the party responsible for procuring insurance the ability to weasel out of providing the coverage they otherwise would have.

If your organization (or your clients) is still requiring obsolete insurance coverages in your contracts, it's time to move into the 21st Century. Spend some time drafting clear, reasonable, and concise contract insurance clauses that use modern insurance terminology. It will be time well spent. As an aside, if you subscribe to our Contractual Risk Transfer reference manual, you can find lists of out-of-date terminology to avoid in Section 14, "Insurance Requirements."

Do you agree that outdated insurance requirements in contracts are a problem? How often do you run into this? Why do you think such old terminology is still being used? Do you have any practical suggestions for our readers on avoiding this problem? [See reader responses.]

In a few weeks we'll be mailing brochures for the 25th IRMI Construction Risk Conference in Las Vegas. In the meantime, remember to reserve the dates on your calendar (November 7-10).

Thank you for subscribing to IRMI Update.

Have a great day.

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI

Risk Tip

Mobile Equipment Nonconcurrency Can Create Coverage Gap—Nonconcurrency refers to a lack of coordination between two or more policies that creates a coverage gap. Common examples involve two or more policies that cover the same loss exposure but have different expiration dates, or an uncoordinated mixture of claims-made and occurrence coverage triggers. The 2004 changes to ISO's CGL policy can also create a coverage gap if the mobile equipment coverage of a general liability policy and the auto liability coverage of the insured's business auto policy are not coordinated.

Revised definitions in the latest version of the ISO CGL preclude coverage under that form for vehicles subject to a compulsory insurance law, a financial responsibility law, or another motor vehicle responsibility law that applies in the state where the vehicle is licensed or principally garaged. A corresponding endorsement to the ISO business auto policy picks up these coverages. As long as both policies are changed at the same time, they meet the intent of shifting some mobile equipment coverage from the CGL to the auto policy.

Nonconcurrency may create a coverage gap if an insured's CGL reflects the new ISO provisions and the auto policy does not. Several scenarios might cause this to happen. For example, the policies might have different expiration dates. If two insurers are involved, the insurer providing the CGL might have adopted the new ISO forms while the auto insurer still uses the old forms. Nonstandard or surplus lines forms may also be nonconcurrent.

Overlapping coverage, another possibility, could occur if an insured's auto policy is updated before the CGL. From a coverage standpoint, double coverage is better than no coverage. However, the insured might then end up with a substantial auto premium—possibly a surprise audit premium—to cover vehicles that are also covered under the CGL.

In today's world, it is important to compare the exclusions and the definitions of both "auto" and "mobile equipment," in both auto and GL policies, to determine whether coverage gaps or overlaps exist.

By: Eric Wiening, CPCU, ARM, AU, AAI, API
Insurance & Risk Management Educator - Author - Consultant
West Chester, PA

Suggest a Risk Tip. Send us a practical tip (less than 300 words) for identifying and managing risks, buying insurance, managing claims, or filling gaps in insurance coverages. Submit your tips. We'll acknowledge your contribution as we did for Eric.

New Expert Commentary

There are now 674 risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

The Changing Definition of Protected Concerted Activity—In his 25th article for IRMI.com, Paul Siegel discusses a recent Labor Board case allowing employer rules that prohibit abusive language and harassment, language previously found to be unlawful on its face.
Personal Risk versus Personal Success—Does an employee have the right to knowingly take significant personal risks on the job to achieve significant job or personal success? Dr. George Head examines the ethical dilemma.
Excess Insurer Entitled to Equitable Subrogation—Not Equitable Contribution—In his Insurance Law column, Joe Postel looks at the 2004 decision in Home Ins. v Cincinnati Ins. and discusses its possible effect on additional insured claims in the future.
Probing the Gaps in GAP Insurance—Dr. Tim Ryles discusses Guaranteed Auto Protection (GAP) insurance: what it covers, common exclusions, how it is regulated, and certain sales/marketing methods to watch out for.
The "Bargained-for" Result: Torts, Contracts, and Statutes of Limitation—Limitations for contract and tort actions may differ. The applicable statute of limitation "is properly related to the remedy, rather than to the theory of liability." Kenneth Slavens explains.
Personal Risk Management: Making A World of Difference at Claim Time—Jack Hunglemann relates how agents/brokers can prove their worth by helping determine coverage, smoothing the process, and becoming a strong advocate if a claim is unfairly underpaid or denied.
Coverage Disputes Give Rise to "Independent" Counsel—Brent Cooper explains how the Texas Davolos case sets out how the Independent Counsel Rule should be applied and a test as to what coverage questions give rise to independent counsel.
"Flying Machines" and Early Airline Insurance—As America became a world leader in aviation, the industry’s size and importance made it a crucial line of business for many agents, brokers, and insurers. Jack Bogardus and Robert Moore explain.

Keynote Speakers Confirmed

The IRMI Construction Risk Conference is the premier forum for sharing ideas and techniques for improving the ways we manage and insure construction risks. A record 1,300 attendees are expected this November 7-10 in Las Vegas to celebrate 25 Years of Innovation. This year's keynote speakers—Hugh Rice, Chairman of FMI Corporation, and Pat Ryan, Executive Chairman of Aon Corporation—will present "Forecasts and Challenges for the Construction and Insurance Industries." The best way to reserve your preferred workshops is to register online. Set a reminder for July 1, when early-bird registration begins. See the Agenda.

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Expert Commentator Paul Siegel Hits the 25 Mark

Expert Commentator Paul Siegel's 25th article for IRMI.com is now on the home page and listed under "New Expert Commentary" above. An employment law and litigation partner of Jackson Lewis LLP, he has written the employment law column since March 2000. He has contributed articles dealing with all aspects of employment law, including discrimination, drug testing, military leave rights, OSHA ergonomics standards, and the Americans With Disabilities and the Sarbanes-Oxley Acts. For more information on Mr. Siegel and his firm, see his full biography and a list of his articles.

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IRMI Update—Issue #115

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