INSURANCE COVERAGE SURPRISES

There never seems to be a shortage of exclusions or restrictions found in insurance policies that leave many industry professionals shaking their heads and wondering about the increasing illusory value of insurance contracts. For many policyholders, these exclusions or restrictions are not revealed until the policies are finally issued (often six months or more after coverage was bound) and reviewed. For others, they may not surface until an uncovered loss or claim occurs. And for some, they may simply never be known.

Conditional Renewal Notices are supposed to point out coverage reductions, but often are confusing, vague or simply incomplete. Sample policy forms and endorsements almost never accompany renewal proposals unless the buyer requests them. This leaves the buyer with little but price and the producer’s recommendation on which to base the purchasing decision. What’s worse is the producers have often not obtained, much less reviewed the sample policy forms either.

In one instance, an Excess Umbrella Liability insurer included an Insured Premises Limitation endorsement on their policy restricting coverage to specific operations at one specific location (despite the lack of such a restriction on the primary policy issued by the same insurer). Upon questioning, it was learned that this particular insurer routinely attaches such an endorsement for single location Insureds since the addition of a new location could mean a material change in operations about which they want to be aware. Our advice? Find a new insurer!

Another Umbrella insurer recently incorporated an Aircraft Liability exclusion into their new policy form which excluded aircraft owned, rented or chartered by, or loaned to, any Insured or on the Insured’s behalf, with or without crew unless coverage is available in scheduled underlying insurance. Most Umbrella insurers will provide coverage when aircraft are rented, loaned or chartered with crew, which is a valuable coverage extension since most General Liability policies (indeed all ISO Commercial General Liability policies) exclude any aircraft owned or operated by or rented or loaned to any insured.

Professional Liability exclusions are finding their way into Commercial General and Excess Umbrella Liability policies, often with language that is vague (where "professional services" is not even defined). According to once source, an insurer defined “professional services” to mean "any services requiring specialized skill or training" (obviously too broad in scope). In another instance, an insurer used an endorsement to exclude the professional services that were described in the endorsement’s schedule and then completed the schedule to read "all operations and products of the insured . . . " (which taken literally could void all coverage). Professional Liability exclusions must be clear and concise and, in situations where Professional Liability insurance is maintained, the exclusion of coverage in the General Liability policy should coordinate with the coverage provided in the Professional Liability policy.

Property insurers using non-ISO forms also are continuing to cut back on coverage. Most Property insurance policies, including Builders Risk policies, have always allowed the Named Insured to waive rights of recovery before a loss. Such waivers are common and place responsibility for loss payments on the insurer covering the risk. AIA Construction Documents routinely call for all parties to waive rights of recovery against each other and this includes owners and contractors waiving rights of recovery against the architect for a construction project. In one recent situation, an Owner signed an AIA Owner-Architect Agreement with such a waiver provision. When the Owner received bids for the project’s Builders Risk coverage, imagine the surprise when the Owner found many of the proposed policies did not allow the Named Insured to waive rights of recovery against an architect or engineer.

Close examination of insurance policies before they are purchased is the only way to truly understand the value of the insurance contract that is being purchased.

-- Charles H. Cox

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