Agents Learn About Potential Policy Glitches, Coverage Fixes

Are you and your customers aware of potential policy “glitches” in their coverages? And what are you doing to help remedy the situation?

Glitches in policies agents select for insureds and possible coverage “fixes” to close those gaps or lapses in coverage were discussed by Fred Macy, president of Gray Wolf Insurance Seminars during the recent Annual Professional Independent Insurance Agents of West Virginia Convention in Shepherdstown, W.Va.

“With an enlightened use of automation, we have an opportunity to spot possible lapses or gaps in coverages we provide our insureds,” Macy said. “With our agency automation systems we can look for specific details in an insured’s account that alert us to possible trouble in coverage applications or losses.”

In his presentation, “Glitches, Hitches and Fixes,” Macy covered some of the more common policies used in personal and commercial lines. He reviewed insurance services office coverage forms, indicating that in personal lines, the ISO personal auto policy (PAP) gets attention first, followed by ISO HO 2000.

“The ISO personal auto policy is the most commonly used auto policy among the American Agency System agencies,” Macy said. “Eligibility is fairly broad for insureds, individuals and families, and the vehicles they own.

“Private passenger autos, pickups and vans are commonly insured by the PAP,” he continued. “The policy, however, is far from simplistic, and opportunities abound for mistakes in coverages or application of those coverages.”

Macy went on to describe five areas of concern with the policies, in which he asked PIIAWV course participants a series of questions and asked them to provide their fixes. The glitches involved common calls from policyholders, such as what coverage a college student has when they leave home and move to another state.

For example, at 3 p.m. an insured calls to report the purchase of a new car that is an additional car. He bought and took delivery of the car three weeks ago. He wants to add OTC and collision to this car. And, by the way, he dented the left front fender on his way to work this morning when he swerved to miss a dog in the road and hit a fence post.

Macy told attendees, “the insureds file shows no physical damage on his old car, and asked:

1. What deductible does he have for the loss?

2. When does physical damage coverage begin and at what hour?”

Quoting ISO’s interpretation of this situation, Macy said the caller would not be covered because according to the provisions of his policy, he had to notify the agent within 14 days that he wanted his policy to cover the new vehicle.

Other topics included in Macy’s personal auto policy discussions included insuring a rental car. For example, should a customer buy the rental car agency’s collusion damage and loss damage insurance? Would a policyholder be covered driving a 28-foot U-Haul truck while moving his office from home to new office space? Macy asked participants.

Homeowner coverage

“The ISO (HO 3) and the AAIS (form 3) special forms are the most commonly used property and liability coverage forms for insuring owner-occupied dwellings,” Macy said. “Offering replacement cost settlements on buildings and on contents when properly endorsed, the current represent an evolution in property coverages in personal lines.

“Today’s forms represent current thinking in loss settlement, pollution exposures, business exposures in property and liability, and extensions of coverages,” he added. “New definitions and exclusions have been introduced with the new HO 2000 series of forms.”

Macy focused on three examples of concern: What coverage a homeowner requires if he builds oak gun cabinets and sells them at craft fairs; whether a policyholder’s son has coverage for personal items he takes to school; and what coverage a policyholder has if a windstorm blows over three trees in his yard-what coverage he has to clear the trees and what coverage he has for damage to property caused by the falling trees.

Commercial lines

Macy then shifted his focus to commercial lines and the ISO commercial property and commercial general liability forms, addressing four areas of concern involving adjusting a business storm claim; a question about insuring a $200,000 bank of computer servers and routers; earthquake insurance coverage; and how to process claims for cleanup of a multi-million dollar business fire.

Macy concluded with a discussion on commercial general liability coverage, detailing provisions for bodily injury and property damage liability.

His area of concern outlined a liability claim in which a policyholder closed his office at noon so employees could attend a family picnic at a local state park. He called the local temporary service and hired a “temp” to come over at noon to man the phones for the rest of the afternoon. Her instructions were to tell callers that the office would be open as usual the next day.

Everything was fine until about 4:30 p.m., when an intruder entered the back door of the office by force. The intruder attacked the “temp,” stole her purse and car keys, and fled in her car.

She required medical attention for cuts and bruises, but bragged the intruder was in worse shape than she was. She told the police that her attacker would be easy to identify because in the fray, she had stapled his left ear to the side of his head.

Macy said that, two months after the attack, the “temp” sued the insured for negligence, claiming that he had failed to provide her with a safe working environment and that he had not warned her of poor security at the back door.

Macy told the class the “temp” was working for the insured when the attack occurred and that the insured’s liability coverage was provided under ISO CG 00 01 10 01. He then asked, “How will the insured’s liability carrier respond?”

According to ISO’s interpretation, “employee” includes a “leased worker,” and that it does not include a “temporary worker,” Macy said. While the policy would not cover the “temp,” it would defend the company against a demand for damages, he noted.