By Dave Miller, Thoits Insurance
Business liability, automobile, and workers’
compensation insurance policies all
typically start from standard forms.
Although most policies contain modifications,
at least the core coverage parts usually are the
same from insurer to insurer.
However, business property insurance forms are much
less standardized. It seems every insurer has its own,
sometimes more than one. Because of this, policy form
analysis to ensure the coverage purchased is the coverage
desired is important.
Start with the Named Insured. In property insurance, any
entity not named will not be protected for its insurable
interest in its real or personal property. To collect, you
must meet at least two conditions: 1) be named; 2)
possess a legal insurable interest at the time of loss. Use
of an omnibus clause (e.g., “XYZ Corporation and its
owned, affiliated, or subsidiary companies as now exist
or hereafter be constituted”), when permitted by the
insurer, may help, but there really is no substitute for
ensuring every proper insurable interest is named, and
named precisely and correctly.
Values to be insured are not as easily quantified as may
appear. Replacement Cost may not recognize functionality.
Actual Cash Value may mean one thing in California
and something entirely different in New York. If time and
effort is not devoted up front to ascertaining the correct
values to insure before the policy is issued, how does
anyone expect to have a smooth time after a loss?
Blanket limits may help, if available, but still one needs to
ensure the correct Valuation Clause (method of valuation)
is specified and requirements are met. Even Blanket
Limits have their limitations. Avoid coinsurance clauses
whenever possible.
Property insurance polices should not be regarded as
static documents. Insureds acquire and dispose of property.
Occupancy may change; this may affect coverage
and pricing drastically. Procedures must be in place to
ensure the property insurance program is continually
updated to afford appropriate coverage at all times.
Often overlooked or seriously underinsured extensions of
the basic policy include debris removal and code upgrade,
sometimes called law and ordinance. If included in the
basic form, coverage for these exposures generally is
within the limits, meaning that while coverage is applicable,
any insurance money used to pay for debris removal
or code upgrade upon replacement will not be available
to pay for the basic loss. Oftentimes, these exposures
represent significant percentages of the total; care is
required to ensure the policy terms and limits properly
provide the appropriate protection.
While studying property insurance forms may seem like
dry work, doing so up front will pay dividends if there is a
claim. Everybody reads the forms after a major loss;
smart buyers read them beforehand.
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