This article provides an overview of various E&O loss exposures that exist in commercial lines of insurance and reviews methods and procedures that an agency could consider to help reduce the possibility of a claim. Included is information about certificates of insurance, additional insureds, hold harmless agreements, subrogation waivers, protective safeguards warranties, leased property exposures, and more.
Commercial Insurance
Exposure and Coverage Issues
1. Waiver of Right of Subrogation - If an insured contractor waives rights of subrogation against an architect, the Builders Risk form must be checked to see if coverage is not affected. Some ISO forms and many marine forms do not permit waivers without the carriers permission. Specific forms should by checked for this restriction and the insured should be made aware that coverage modification might be required if they sign specified waivers.
2. Protective Safeguards Endorsements - If a fire protective system listed in the schedule is turned off and not turned back on within 48 hours, fire coverage ceases. Insureds should be made aware that if the system is within their control that they need to notify the agent/company for coverage to continue.
3. Insurance Services Office, Inc. (ISO) has introduce new Commercial Property, Business Income, Causes of Loss, Businessowners, and Commercial General Liability forms during the past year that contain major coverage modifications. As your carriers and competition adopt these forms as is, or with modifications, or if they elect to retain the previous editions, significant potential E&O exposures are created for the agent. The agent must be aware of what the changes are and what each one may mean to the client. Also the client must be made aware of options that may be available to modify the coverage. An agency risk survey must be reviewed to determine if they need to be revised.
4. Commercial Property forms limit coverage to property located at a described location and to property within 100 feet in the open or within a vehicle. Some companies may extend that to 500 or 1000 feet. It is important to inform the insured of the importance of notification to the agent/company if an additional location is acquired. Coverage forms may contain automatic coverage for newly acquired locations for a specified percentage (10-25%) or dollar amount (100,000 - 1,000,000) for normally 30 days. After that time there is no coverage. Review specific company forms for their extensions and restrictions.
5. Policies should be reviewed to verify that the coverage issued conforms with the way the policies were ordered by the client and on the applications. There have been a number of losses, especially with non-standard contracts were the carrier issued coverage on a per location limit basis while the coverage have been ordered on a blanket basis. As a result, the insured was underinsured at the time of loss and/or incurred a co-insurance penalty.
6. Leased property (buildings, improvements and betterments, equipment) can create significant exposures and coverage problems. It is estimated that as many as 80% of commercial entities lease something annually. Frequently the lease requires the lessee to assume contractual responsibilities that fall far outside of their insurance protection. The relationship between the client and the agent may create an expectation that the agent should assist in analyzing the leased exposures and contractual coverages in the property and casualty forms. Special care is required to determine client expectations and if necessary, suggest when he or she should seek assistance from legal council on lease interpretation.
7. Many commercial insureds face increased costs of rebuilding damaged property as a result of having to meet building ordinances or laws after a loss. This could be a local, state or federal ordinance or law. Examples include upgrading a building’s electrical system or the addition of a sprinkler system in a frame or multi-story building.
Title III of the Americans with Disabilities Act (ADA) provides that those private entities offering public accommodations are responsible for making reasonable modifications in policies, practices or procedures to accommodate individuals with disabilities. Any new construction or “substantial alteration” to existing public accommodations must be made to ensure that it is readily accessible to persons with disabilities. This includes basically all service and sales establishments.
Examples include: restaurants, shopping centers, retail stores, hotels, motels, movie theaters, concert halls, stadiums, banks, pharmacies, dry cleaners, beauty shops, professional offices, public transportation terminals, museums, libraries, galleries, parks, zoos, schools, day care centers, homeless shelters, recreation centers, golf courses. The insurance coverage should recognize the potential exposures and coverage needs of these insureds including liability, ordinance and law property coverage for direct and indirect losses.
These are a few points to consider in the prevention of commercial E&O losses. Hopefully it provides you with an idea of steps your agency can take to evaluate current procedures with the objective of optimizing client service, maximizing agency effectiveness and meeting the expectations of the agency.