How States Differ in Responding to Coverages and Their Application

I have done a tremendous amount of errors and omissions (E&O) work over the years, including serving as approved and accredited auditor for two major E&O carriers, a certified E&O instructor, an author of an E&O book and more. Through my work, one E&O exposure I have found developing more often due to globalization is the understanding of how coverages are applied in different geographies. Some of these situations involve legalities but in other cases, the situation involves practical differences. These situations also often supersede E&O exposures and are the difference between good advice and bad advice.

For example, does it make sense to maintain physical damage on an older car? I think most answers I’ve seen are that it does not, but that is not always good advice. If someone is middle class and lives in an urban area, dropping physical damage makes more sense. If an accident occurs and a person is without physical damage, there is always mass transit, car sharing, Uber/Lyft and taxis. In other words, lots of alternatives exist for getting to work.

This is not true for poorer people and people living in more rural areas. Alternative transportation is more limited, the price is far higher relative to income, and in many rural areas, absolutely no alternative transportation exists. On paper, the physical damage coverage may be exorbitantly priced relative to value but the risk of having no transportation may make it a risk worth paying.

I meet agents all the time that repeat whatever the last insurance instructor told them without giving adequate thought. Not that the instructor gave adequate thought either to the insured’s specific situation. Canned answers are useless answers.


A more legal and technical situation arises when discussing various coverages like business interruption and even replacement cost and ordinance and law. If an agency is writing an account in another state that has much more restrictive employment laws, and they do not account for this when helping a client develop their business income exposures, the probability of underinsuring increases. This is because replacing, keeping intact and even enforcing trade secrets is far more expensive in those states. Possibly the major exposure here is when a business has multiple locations. More and more commercial clients have multi-location operations or at least are more dependent on the global trade chain.

For example, what happens to a business’ exposures now that tariffs have been imposed with China? The cost of certain construction materials increased significantly. Has this been accounted for in the limits?

Another example has to do with ordinance and law (O&L). In my E&O audits, almost 100 percent of the time, agents think only of their local building regulations when determining the amount of coverage needed. (Most agents I meet never even think of offering higher O&L limits and a large proportion do not even know higher limits are available). Many municipalities have imposed stringent new building codes due to elevation needs, fire safety needs, or because of their environmental beliefs (i.e., green roofs are extremely expensive). If a client has multiple locations or is writing a second home, to write the risk well requires learning about the building codes and issues that affect ordinance and law coverage where the building is located.

A relatively new geographic exposure is related to various cyber laws, including the European Union’s new cyber law. This law applies to many U.S. based businesses, even small businesses, that do not have employees in Europe and may not have clients in Europe. If an agency does business with a European insurer, it could be possibly subjected to those laws. This is an example of how globalization emphasizes the importance of geography in assessing a client’s exposures and insurance needs.


I have seen several claims related to property deductibles. This usually happens with Midwestern agencies. Most people, I find, in Midwestern agencies do not fully appreciate how difficult property is to write in many other parts of the country. The result is when a client has property in those areas, they are thinking about applicable coverages as if the buildings were in their town. They do not think through the effects of high deductibles specific to named perils. They do not think through blanket deductibles. They do not think through the rebuilding cost. Most Midwestern towns are not going to require earthquake retrofitting or stilts or hurricane windows.

My suggestion is to at least stop and ask yourself, what could be different in that location? Who can I call and ask what I should be aware of?

Workers’ Comp

Possibly the most technical or legal geographic coverage issue resides with workers’ compensation.

First, the various state issues and how some states are monoline, some are 3A, and some are 3C, have to be addressed.

Second, water risks have to be addressed.

Third, the different laws addressing different water related worker exposures have to be understood. These situations can become incredibly complex and do not even touch on federal right of ways.

I am not suggesting people need to know every aspect of every geography relative to workers’ compensation and related maritime coverages. I am suggesting, as strongly as I can, that agents need a better level of awareness that geography makes a huge difference when writing workers’ compensation. In my E&O audits and discussions with agents, the lack of knowledge on this most basic point is scary. I am not sure where people are getting their education, but they are not learning a fundamental point. It seems their focus is almost entirely limited to one location. Workers’ compensation depends on where the worker is working. That question has to be asked with some exactitude and consideration of multiple locations.

Geography really matters. Coverage knowledge is critical, but coverage knowledge without consideration of geography is a huge mistake.

Consider the client’s geography and ask in-depth questions to really understand the client’s geographic exposures. You will be better appreciated. Your clients will get better coverage. You are less likely to be sued. Everyone wins.