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Exclusions. Insurance policies are full of them. I’ve been reading some policy forms lately. Some to study, others because they’re interesting to me. It’s kind of a sick hobby, I’ll admit, but it’s not hurting anyone and I’m not asking anyone to read them with me. Anyway, in reading a commercial property policy, I was intrigued with the different exclusions I found. Have you ever read exclusions and wondered why something is excluded? I have, and I still do.
As insurance professionals, we should be familiar with the policies that we deal with. Part of that is knowing their exclusions. You’re wondering why? That’s fair. Think about it. Your customer is a small business owner and you’re looking at their property policy. They’ll often have some variation of the CP 10 30 Causes of Loss – Special Form on their policy. It is the exclusions that create gaps in coverage that you may be able to fill for them. It’s also in the added exclusionary endorsements that may create issues. You should be aware of the reasons that certain losses are going to be excluded and others aren’t. Knowing why the exclusion exists also helps you to know which exclusions you may be able to use to help the customer better protect themselves, thereby building a deeper relationship with the customer.
Let’s look at some reasons that losses are excluded. I’m sure that this isn’t a complete list, but it’ll get you thinking and that’s really the point.
The property may not be covered. You may not find this in the exclusions section of the policy, but it’s still exclusionary language. Every property policy includes a list of property not covered. Knowing where you can find property not covered is important because your insured my have some of that property. Look for the list of property not covered on the CP 00 10. That’s a good place to start, but that’s not the only place. When you review the causes of loss form, you may find some more property that’s not covered for certain causes or some circumstances when covered property becomes property not covered. Going back to our purpose, that knowledge helps you to help your customer understand the limitations of their policy.
Outdoor personal property is not covered for rain, snow, and sleet. Personal property in transit is only covered for a list of specific causes of loss, including fire, lightning, explosion, vehicle collision, and theft of an entire package. All of this exists only if the property isn’t in the care, custody or control of a salesperson. Remember that we’re looking at times when covered property may not actually be covered, or the coverage becomes limited.
The cause of loss may be too catastrophic. Certain exclusions have been on property policies for as long as insurance companies have been writing property. A fire policy written in the 1860s included an exclusion for fire as a result of war or military action. The war and military action exclusion is still on property policies today. That exposure is considered to potentially catastrophic to cover. In some areas, windstorm and hail may be excluded because the risk is too high for standard market carriers to provide coverage. Many policies exclude flood as a cause of loss. In my opinion, neither of these causes of loss should be excluded in large scale. I think that construction has improved to a point and risk identification has improved so that we should be able to rate for those causes of loss, but that’s another conversation. On the other hand, there will always be potential causes of loss that are simply too catastrophic to cover on a standard market policy.
The cause of loss may be too certain. There are usually a series of exclusions that include wear and tear, rust, smog, nesting or infestation, settling, cracking, etc. The older a building gets, the higher the possibility that these kind of losses will occur. These can be considered maintenance issues. Insurance policies aren’t designed to provide for the maintenance of a building. They are designed to cover the unforeseeable losses. If the roof gets too old, it will leak. The older the structure is, the more likely it’ll be to settle and have interior cracks. If there’s smog in the air where the building is, it’s just another environmental condition that is going to have an impact on the building. Some losses are just too certain.
The cause of loss may be location specific. You may find an endorsement added because of the specific risk characteristics of the customer. Your customer is a restaurant. You’ve requested a quote from a company that has a program for restaurant risks. Part of that restaurant program includes a requirement to add a specific endorsement that creates a contractual obligation on the insured. The company adds the ISO CP 04 11 Protective Safeguards endorsement. This endorsement creates a requirement in the policy that the insured have and maintain certain protective equipment or agreements. For a restaurant, the requirement may be a fire suppression system installed over the cooking space and a cleaning agreement for the vent hood. What does this endorsement do? It tells the customer that they are required to properly maintain these protections. Should they fail to do so, or the fire suppression system become disabled, and they are aware of it, fire is not covered. Isn’t that an interesting endorsement?
There are other endorsements that exclude specific causes of loss. There is a windstorm or hail exclusion, vandalism exclusion, sprinkler leakage exclusion and others. All of these are used to limit the exposure when the risk of the particular cause of loss is high enough to warrant excluding it based on the location and what’s going on there.
The cause of loss may be covered, but limited. This includes certain causes of loss that might show up as an exclusion with an exception. Read the fungus, wet rot, dry rot exclusion on the CP 10 30. There you’ll see that there are exceptions to the exclusion. It sends you to an additional coverage where the policy will now provide some coverage for that cause of loss. You need to be aware that there is an annual aggregate limit of $15,000 for this. That creates a very limited coverage. As we remember that, we can address it with certain endorsements that may be available, depending on the company.
One last caution before I send you on your way. Keep in mind that policies with different companies and even policies issued by the same company for different risks will have different language. Certainly, the basic policy language may be very similar, but things that are similar are not the same. You must be comfortable referring back to policy language and willing to do the research to look at policy language in order to best serve customers. I would caution you not to try and rely on your memory of policy language. Your memory probably isn’t that good. Be familiar with the policies that you work with.