An IIABNY member emailed me last week about a quote she had received from a wholesale broker for a Businessowners Policy (BOP). The quote was from a surplus lines carrier that is a member of a large, nationally known insurance group. I will leave the names of the carrier, wholesaler and retail agency anonymous.
The BOP is intended for a transportation company. By definition, the predominant risk for a company like that is in the automobile line of coverage; the property and liability coverages, while still important, tend to be an afterthought. The member had concerns about a prototype endorsement that was included in the quote, and she wanted my thoughts on it.
The endorsement was a mock-up of ISO endorsement BP 04 01 01 06, Comprehensive Business Liability Exclusion (All Hazards in Connection With Designated Premises or Operations). This endorsement contains a schedule with two fields. Item A is labeled Description And Location Of Premises:; Item B is labeled Description And Location Of Premises Operations:. The endorsement’s text is very simple. It adds the following text to the exclusions in the Liability section of the policy:
“A. This insurance does not apply to ‘bodily injury’, ‘property damage’ or ‘personal and advertising injury’ arising out of:
1. The ownership, maintenance or use of the premises described in Item A. of the Schedule or any property located on those premises;
2. Operations on those premises or elsewhere that are necessary or incidental to the ownership, maintenance or use of those premises; or
3. Goods or products manufactured at or distributed from those premises.
B. This insurance does not apply to ‘bodily injury’, ‘property damage’ or ‘personal and advertising injury’ arising out of:
1. Operations described in Item B. of the Schedule; or
2. The ‘products-completed operations hazard’ arising from those operations.”
So, the liability coverage does not apply to loss arising out of the premises described in Item A. The following text was entered in Item A on the mock-up: “Premises is defined as the principle address and coverage premises stated in the policy declarations.” [Emphasis added] The policy declarations showed one address – the address of the insured’s primary business location. Thus, according to the plain language of this endorsement, the liability insurance does not apply to loss arising out of the ownership, maintenance or use of the insured’s own premises or any property located there. If someone falls on a slippery surface there, no coverage.
In addition, Item B. listed three desciptions of operations that are not covered:
“1. Any and all work performed off-premises, [emphasis added]
2. Any on-premises work not normally carried out in an office.
3. Any non-clerical or non-administrative work.”
Again, by the plain language of the endorsement, the insurance does not apply to any and all work performed off-premises. As we just saw, the insurance also does not apply to loss arising out of operations on-premises. In other words, this endorsement excluded all liability coverage from this policy. As I wrote to the member, “Because of this endorsement, the policy is essentially a monoline property policy disguised as a BOP.” The policy would show liability coverage on the declarations; it would even show limits. The quote showed a premium charge of hundreds of dollars for liability coverage. But the endorsement excluded all operations on- and off-premises. No liability coverage. At all.
I’ve wondered if the underwriter for this account did this out of malice or what I will charitably call “lack of knowledge” or sloppiness. Regardless of the reason, this is a seriously misleading quote. It would be all too easy for an unsuspecting business owner to buy this policy and think he was covered for a third-party’s injury. The policy could even have renewed three or four times without a loss, and in year five he would find out how worthless his policy was when someone wiped out on a wet floor. To sell such a policy with all the trappings of a normal BOP is unconscionable.
As I mentioned at the beginning, the insurer who offered the policy is not admitted in New York. If the New York State Department of Financial Services decided to discipline someone over this, it would likely be the excess line broker who obtained the policy, though I can’t say for certain that the retail broker wouldn’t have gotten so grief, too. If there was an uninsured loss because of this exclusion, someone would be called to account for it. It wouldn’t be the underwriter who released a dishonest or incompetent quote.
I don’t know what became of this quote. I advised the member to make certain that the insured was aware of this coverage hole before he made the purchase decision. The lesson here: You must carefully review all quotes and ask questions of the wholesaler or carrier if you see anything that looks strange. This little trucking company could have bought a policy that was essentially a lie. You don’t want that to happen to your clients. They’re relying on you to make sure it doesn’t.