Common Insurance Mistakes and Lessons Learned
By Bill Pritchard, President & CEO
While everything about an insurance transaction is important, we have seen a number of errors over our almost three decades in business that have two things in common: they have severe consequences and can be easily avoided. These are mistakes we’ve been asked to try to help fix as we quote accounts new, or see in competitors’ programs as we quote against them. While knowing about these issues often gives us a competitive advantage, we feel it’s far better to share what we’ve learned with others in the hopes that everyone avoids these costly mistakes.
Retroactive date errors
The majority of environmental policies have some sort of claims made coverage part. Many Contractors Pollution policies are written on an Occurrence form, but in some cases the Mold coverage is claims made. It may be the transportation extension, or the Non-owned Disposal Site coverage that has a retro date as well. On package policies, the Employee Benefits Liability is often claims made.
Site specific pollution policies are almost exclusively claims made, but the retroactive dates are still challenging to sort out. In some forms the retro date is the earliest date a pollution condition can occur, while in others it is the difference between the carrier’s “new conditions” versus “pre-existing” coverage, both of which are on the form.
Finally, agents need to be concerned with the structure of the coverage they are taking over. We always ask to see expiring policies, not because we want to see what our target pricing should be, but because we want to be sure we are not missing anything they may have had in the past that we need to bring forward into the new program.
Advancing retroactive dates, converting what used to be claims made coverage to occurrence without using the proper tools to transition the exposure, misunderstanding what the retroactive date actually does, or simply dropping the date altogether have enormous ramifications to the coverage, and can easily be avoided.
Late reporting of claims
Perhaps the number one reason we see claims declined by carriers is for late reporting of the claim. We are constantly amazed at the number of claims we see where, before contacting the insurance carrier, the insured engages in a lengthy discussion with the claimant, agrees to responsibility, and even undertakes work to correct any damages. Every environmental insurance policy contains a provision entitled “Duties in the Event of a Claim.” Within this, the carrier makes clear that the insured cannot accept liability or negotiate or interact with a claimant without first notifying the carrier.
An exception to this in newer environmental policies are the “Emergency Response” expenses that many carriers offer. This is a provision that says if the insured needs to take actions to prevent imminent harm to the environment or imminent bodily injury, then they can take action to mitigate the loss and the carrier will reimburse those expenses. An example of this is an aboveground tank release that is pouring out of the tank, escaping a breach in the diking, and heading for a stream. The carrier wants the insured to prevent the release from becoming a bigger problem by acting right away.
With the exception of these sorts of provisions in forms, it is crucial for insureds to reach out to their insurance companies early and often. The days of worrying about a report increasing their renewal premium are gone. Now insureds who hold off reporting their losses in the hopes they can handle them themselves, are finding that they have invalidated their coverage entirely. Good advice from an agent can prevent this costly error.
Named insureds
Another common and easily remedied error involves Named Insureds. We have seen several examples of clients who list only the first Named Insured, but none of the related entities when getting a quote. When a claim comes in under the name of a related entity not listed, the insurance carrier will often deny the claim. It can take longer to underwrite the related entities as the carrier will want to know about their relationship to the insured, operations, etc., but if the expectation is that they should be covered by this policy, it needs to be done.
We find agents occasionally believe that having listed the entities on an Acord app somehow means they need to be covered by the carrier. Unfortunately, this is completely incorrect. (see below)
Reliance on applications
A simple fact of the environmental marketplace is that what the carrier quotes is what you get. Period. Unlike standard lines insurance, what you list on your application is not automatically covered by the carrier who offers you terms. In fact, most companies’ cover letters explicitly state that anything not shown in the quote itself is declined by the carrier.
So, if a location the insured operates in is on the application but not listed on the quote, there is no coverage for it. If a related entity is referenced on the application or the included material but not listed on the quote, it is not covered.
This simply means the agent needs to be very thorough when reviewing all terms offered to be sure everything they listed on the application is addressed in the quote, and if it is not, they need to do to get it added.
Missing locations and overlooked storage tanks
Another common error relates to Premises Specific or Site Pollution policies, or to the extensions on other policies giving similar coverage. These policies are designed to provide coverage for specified locations. The majority of these forms require the locations to be scheduled on the policy itself for coverage to apply.
Unfortunately, we often see accounts where only a few of the insureds locations were actually listed and covered. This appears in part to be due to dependence on the application as noted above, and also agents simply may not understand what the product requires.
A similar misunderstanding involves covering underground storage tanks. Virtually every Premises or Site policy has an exclusion built into it that excludes coverage for undergrounds storage tanks unless they are scheduled on the policy. There are several exceptions, usually involving unknown tanks, oil water separators, etc., but everything else needs to be scheduled for coverage to apply. We often see submissions with tanks listed on the application but none on the expiring policy. Another error easily avoided.
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By carefully reviewing the information on an insured’s application, quote, and policy, and agent and his/her client can avoid oversights and possible coverage gaps. Beacon Hill strives to help agents understand the intricacies of environmental coverage and areas that need special attention, working to avoid these common mistakes.
For more information on pollution insurance, contact us.
