I often get questions similar to one I received from an IIABNY member last week. "Does a Homeowners policy cover you,” the member asked, “if you host a party or rent a hall for a wedding reception?"
The person asked if a Homeowners policy covers a party. This implies that all Homeowners policies are the same. A Homeowners policy covers a certain exposure. They must all cover it, right?
Bill Wilson of Big "I" Virtual University is currently waging a war. He’s fighting the unfortunate and inaccurate notion that insurance is a commodity. This is an effort that I whole-heartedly support. Insurance policies are not all the same. If we insurance professionals don’t understand this, the public won’t either.
This is the first in what I hope will be a series of posts on this topic. Today's exhibit comes to us courtesy of an anonymous insurer. Its name is secret to protect its guilt. Our specimen is the insurer's commercial auto insurance policy.
First, though, I’ll give a quick refresher on the ISO Business Auto Policy, CA 00 01 10 13. The ISO form has five loss conditions:
- Appraisal for Physical Damage Coverage
- Duties in the Event of Accident, Claim, Suit, or Loss
- Legal Action Against Insurer
- Loss Payment Options - Physical Damage
- Transfer of Rights of Recovery
It also has eight general conditions:
- Concealment, Misrepresentation, or Fraud
- No Benefit to Bailee - Physical Damage Coverages
- Other Insurance
- Premium Audit
- Policy Period and Coverage Territory
- Two or More Coverage Forms Issued by Insurer
Now let's examine our anonymous insurer's form. It has all of these conditions, though the names differ somewhat. However, it also contains this additional condition:
This policy, its applications, all endorsements, and the Declarations include all the agreements between you and us relating to this insurance. It is the responsibility of the insured to notify us of any changes to drivers and vehicles. No change or waiver may be effected in this policy except by endorsement issued by us. If a premium adjustment is necessary, we will make the adjustment as of the effective date of the change. All endorsements to this policy are subject to these General Provisions unless otherwise modified in the endorsement.
According to this provision, the application is part of the legal agreement between insurer and insured.
The third paragraph of the Applicant's Statement on the application (there are eight paragraphs) states in part, "I understand I have a continuing duty to notify the Company of any changes in: ... (3) the operators of any of the vehicles listed on the policy ..." The insured has a "duty" to notify the insurer of new drivers, and the statement creating this duty is part of the agreements between the insurer and insured.
Call me crazy, but it sounds to me like the insurer could deny coverage if a driver they don't know about gets into an accident.
So, under the ISO policy, if I hire someone this week and don't think to tell my insurance agent, and the new employee totals the new F150, I have coverage. Under the anonymous insurer's policy, I don't.
There are real differences in the marketplace, folks. If you're selling commercial auto insurance, you have to know about them. Otherwise, you cannot properly inform your clients. Don't ask if a policy covers something; ask if this policy covers it.
Insurance isn't a commodity. Don't treat it as if it is.
More to come, I'm sure.