“Much of my life has been spent in a classroom. In the beginning, the classrooms were brick and mortar. Today the classroom is typically virtual, with participants attending from anywhere in the world. While the setting has changed, what is being taught, which is most important, has not. I believe the best teachers share subject matter with which they have a close personal connection. Subject matter they have lived, and in which he or she has participated. Subject matter which has transformed them, and thus can help transform the student as well. In this textbook, the student has the opportunity to learn from a mentor who is willing to share many years of experience with the reader, to help transform the reader into a competent Agent for commercial accounts, to help the reader establish a career. I view this textbook as much more than an educational tool. I see this course of study as a gift of a prosperous career as a Commercial Insurance Agent.”

Keith Wilts, CPCU, CIC is President of Professional Training Associates, Inc (PTA), a national Insurance education management and training company. Keith has more than 42 years’ experience in Insurance Education. Keith is a member of the national Faculty for the Society of Certified Insurance Counselors (CIC) and Ruble Graduate Seminars. He currently (2019) serves as the CIC educational Consultant for the Missouri Association of Insurance Agents, and frequently serves as the CIC Education and Seminar Consultant on behalf of the Society of CIC and the National Alliance. Previously, Keith has served as Director of Education for the Independent Insurance Agents of Kentucky, the National Education Committee and National ACSR Exam Review Committee for the Independent Insurance Agents of America, the License Administration Committee for the Kentucky Department of Insurance, and as Education Chairperson for the Kentucky Chapter of CPCU. Keith is a contributor to this textbook and has been my primary Insurance education and continuing education instructor for more than 30 years.

The Insurance product is a legal contract. The professional Insurance Agent negotiates this legal agreement between two parties. The Agent must discover the risk and exposures of the client and the coverages offered by their Insurance Company partners. This task, to discover complete, accurate, and detailed information from both parties and communicate these facts between the parties, is the true role of the Agent. We do this using applications for Insurance coverage which is the product of our discovery of the clients operations and understanding of our Insurance carriers’ products.

Unfortunately, most Agents are never properly instructed on the correct completion of applications. Most Agents learn this vital task through a process of trial and error. This means of learning is both unreliable and unpredictable. Mistakes are so commonplace and troublesome they can only be attributed to a lack of knowledge and understanding. Agents learn bad habits from peers or coworkers who likewise were never properly instructed, and so the poor practice persists.

The key to good Insurance practice is information. Accurate, complete, detailed information is essential to producing an Insurance policy that protects your client. Likewise, a properly insured client is the goal of every sound Insurance Company . All Insurance begins with the application, all policies are developed from the application. Correctly completing Insurance applications is the basis of all Insurance policies.

The applications identify both the risks and coverages needed to protect the insured. If the application is wrong or incomplete so too will the policies be wrong and incomplete.

Before a cost of Insurance can be calculated the information found on the application must be complete and correct. The applications are the true facts, the details of the client, from which premiums are calculated.

This text is written from the perspective of the Insurance Agent. It is the Agent’s job to discover the facts of the risk for the client/Named Insured and to work with the Underwriter to develop a legal document, the Insurance policy. Our goal is to protect that client/Named Insured from the financial perils of our everyday world.

The Agent then has the primary role of building a legal contract we call an Insurance policy. In this endeavor the Agent is not alone. A strong relationship with company Underwriters is essential to the success of any professional Insurance Agent. The discipline of Insurance takes many parts to make a whole. The Agent and the Underwriter are the primary team which develop a policy for the client/Named Insured. This partnership depends on open and honest communication, the gathering of facts and details, the discussion of policy coverages and forms, classifications, and hazards to build the proper protection for a client/Named Insured.

The Agent and the Underwriter are not alone in their tasks and duties. Risk-control specialists, claims specialists, premium audit personnel, and account managers all contribute vital functions to the development and issuance of the legal contract agreement, referred to as an Insurance policy.

Developing an understanding of the Insurance industry is most helpful to understand how a policy is generated and what considerations are necessary to tailor coverage to the specific needs of the Named Insured client. You will find throughout this text that the gathering of information during the application stage requires an understanding of the Insurance policy language.

While it is true there are many different fields or disciplines within the Insurance industry that the reader may be inclined to pursue such as a loss control representative, claims specialist, premium audit technician, an Underwriter, or an Agent, all of these fields or disciplines connect to the policy. The policy is the product of the application process: the gathering of detailed information relevant to the risk of the client/Named Insured.

“As an Underwriter, we have premium goals assigned to us. The first and most important tool (we need) to reach our goals, is a complete submission. The Agent needs to present a clear picture of the risk presented (to the Underwriter). The Agent is really the front line Underwriter. The clearer the picture the Agent presents makes the underwriting process smoother and easier. An incomplete submission (application) is going to the bottom of the stack as it is harder to work with and time consuming to gather information that should have been already provided.”

“Second is the development of a relationship with your company Underwriters. Building levels of trust and respect will help move your complete submission (application) to the top of the stack.” (Erna Everman, AU professional designation. Erna has 41 years of experience in the Insurance business with 15 of those years as an Insurance Company Underwriter. Erna has worked on both sides of the table and is still going strong. Erna also is a contributor to this text.).

In the prior section, we discussed the general applicant information. In this section, property, we will start putting that information to its specific use. In the general applicant information section, we identified the premises of the insured. Now we will specifically address what is needed at those premises. The general applicant information form relates to the policy declarations page. The policy declarations page will list the coverage forms, exclusions, and endorsements that define the coverages offered by form number and with a brief description. Coverage forms and endorsements differ from Insurance carrier to Insurance carrier. It is completely wrong to assume that all policy forms for this section are the same. They are not. However, many of the definitions and general provisions are similar. Rather than use one specific policy as a guide for this text, we will use “common meaning” for educational purposes. A caution: While we have taken take care to use general and relevant policy language, Insurance professionals must always read and know what the particular policy they are presenting states. Our job here is to give you a strong understanding of what you need to know and where you need to look to find specific information within the policy. It would be a disservice and incorrect to suggest that all policy provisions, ensuring agreements, coverage sections, definitions, conditions, exclusions, and endorsements are the same for all Insurance companies. They are not and the differences can be profound! Be warned!

Building coverage also includes personal property owned by the insured which is used to maintain or service a building or premises. In this regard to personal property used to maintain or service, some policies may include the word solely. When “solely” is added to the property policy, we need to ask the insured if that particular item, such as a lawnmower, is ever used to maintain property off our insured’s premises. If so, that particular item can no longer be insured as building but rather will have to be added to the policy as either contents or depending on the item may need to be added to a policy form different other than the property policy altogether such as an Inland Marine policy.

The types of items that may be included under building coverage or subject of Insurance, including fire extinguishers or fire prevention equipment, outdoor furniture, floor coverings, and appliances such as refrigerators, dishwashers, microwaves, or other cooking appliance appliances, even washers and dryers or laundry equipment. The scope of these items must be considered specifically for our client as to whether they should be considered as building already included, or as separate building equipment subject of Insurance, or contents.

The building policy limit or amount

In order to provide the correct limit of coverage for a building it is necessary to complete a replacement cost estimator. Oftentimes our client/Named Insured will provide a value for the building which is based on the amount they either paid for the building or the amount of their loan. For Insurance purposes this will not suffice. For Insurance purposes our duty to our Named Insured is to replace the building. Therefore we must use a value for the cost of construction of a new building. Oftentimes our client will be unaware of the cost to rebuild their building, or the building they occupy. Therefore, it is part of our job to inform our client of the potential cost they may face in the event their building is destroyed. Completing a replacement cost estimator provides us with a factual tool we can review with our client so they may understand the Insurance value of their property. As a trusted advisor, we should always seek to inform our client/Named Insured of their risk. Oftentimes Insurance professionals will ask their client what limit of Insurance they wish for their building when what they should be asking are the following questions:

Ordinance or law
Typically on all special form causes of loss policies the very first exclusion is for ordinance or law. The cost or increased cost to repair or replace specific non damaged elements of a building which is based on or required due to the compliance within ordinance or law (local building code) is not covered by the special form or any causes of loss form. Ordinance or law coverage has to be specifically added to the property policy to gain coverage. The ordinance or law endorsement requires that we list the specific location, subject of Insurance, limit of Insurance and even may have specific coverage language depending on the particular ordinance or law cost element. This is often shown on the policy endorsement for ordinance of law as coverage limits for A, B, or C coverage definitions. Coverage A typically refers to the limit applicable to extend coverage for lost to undamaged portions of the building. Coverage B is for increased demolition cost. Coverage C is for increased cost of construction to restore the building. However, depending on the Insurance carrier, the particular ordinance or law coverage form endorsement that carrier prefers to offer may include all three of these coverage components not separated, but as a single limit. Therefore, it is necessary to understand not just what risk exists to your client but also how that risk is addressed by endorsement form available from the Insurance companies we are considering for the protection of our client Named Insured.

Keep in mind, to trigger Ordinance or law coverage, first a covered cause of loss must cause damage to the property, then ordinance or law coverage is for undamaged (by the covered cause of loss) portions of the building.

Again, not all forms are alike even though they may share a common description or headline they certainly don’t hold necessarily the same meaning. It is always important for the Insurance professional to read the entire policy, to read the entire endorsement. You will find it very common that the entire meaning of the policy or endorsement can change by one sentence or one word at the very end of the text or policy. The endorsement forms always contain the same warning. This endorsement changes the policy. Please read it carefully. The commercial property coverage form provides the following warning. Various provisions in this policy restrict coverage. Read the entire policy carefully to determine rights, duties, and what is and is not covered. These warnings are typically the first sentences under the title of the endorsement or Insurance policy coverage section.

“An Underwriter is responsible for multiple submissions from many agencies within their assigned underwriting territory. The Underwriter soon learns which Agents will provide answers to questions and who provides completed applications: those Agents who make the Underwriter’s job easier so that they can provide a competitive and comprehensive quote to the Agent and assist them in selling the account. Consequently, submissions from those Agents go to the top of the pile. The Underwriter is also much more willing to work on a quick turnaround when needed for the Agent who works with them to write business.

“Despite all the technology, despite the multiple markets you, the Agent, deal with.... This is and will always be a relationship business! It is imperative to develop sound working relationships with your Underwriter. This begins with complete and accurate applications.” (Sharyn D. Prime, retired, CPCU, AMIM, AU, CPIW, CIC professional designations and 31 years’ experience as a commercial Insurance Underwriter, also a contributor to this text.)

Each of the policies we will discuss are property coverage forms at heart, designed specifically for property items for which the Property coverage forms are insufficient or need different underwriting, or have different cost (premium) considerations. But keep in mind, we are covering property. So much of what you have already learn about property valuations, co-Insurance, developing insured value (limit), coverage forms (Basic, Broad, Special) and underwriting guidelines still apply, just with a few twists. What makes Inland Marine important for your client/Named Insured relates heavily to their occupation, or a specific action of our customers. For example, if our client is a Contractor, which builds buildings, they will likely need a Builder’s Risk policy or an Installation floater, this is occupation based need. If your client is a building owner, or any client who needs to build a building to house their operations, they may also need a builder’s risk or will be covered by one while their commissioned building is being built, this is an action need for coverage or to understand a coverage presented.

Inland Marine coverage can be dictated by a focused or specific need of our client. Many property forms as we discussed will include a grab bag of coverages. A basket of additional property coverages with a pre designed or determined limits. For example, it is common for EDP (computer coverage) to be thrown into property enhancement forms for $25,000 limit. While this may be fine for certain insureds, it will not suffice for others like large accounting firms which may have, say 30 desktop computers and a large data storage computer or main computer, and operate on expensive and specifically designed software. Consider how important EDP may be to an Insurance Company or Insurance agency where all our work must be electronically stored in a computer. Computers can be insured as contents, but to do so leaves out specific and important coverages we could have given to our client, the Named Insured.

Property Enhancement endorsement (and these have many company specific fun names) typically include the following (for example):

There are many more, in fact, there can be 30 or more different coverage items on these forms. We just list a few examples above. These forms vary company to company, get the entire extension form and read the endorsement (policy) not just the overview or marketing sheet.

These look like great coverages, and they are, but they have problems. Either the limit is not enough to handle our clients exposure (risk or need) and more so, the policy language for the “enhancement coverage is typically very limited. In other words these Enhancement form coverages may not provide the breadth of coverages our client Named Insured needs. Consider these coverages as giving only limited coverage when greater, more specific coverage may be needed. For insureds with unfocused or general needs, these enhancements are great in providing limited coverage verses none at all.

But be very careful in assuming, in fact never assume. The enhancement coverage for employee dishonesty, for example, is not even close to being as broad or useful as the coverage offered by a crime policy, it’s not even close. If your client has employees in accounting or handling cash (which they all will), broader, specific, and consideration to the exposure limits of coverage is important. These enhancements are good, don’t get it wrong, but they are not ever as good as our client or some Agents think. Coverage for employee dishonesty from an enhancement endorsement is not the same as employee dishonesty from a Crime policy. They both are called “employee dishonesty” coverage, but you must read the form, they are very different. The Insurance Professional knows the title of a form of coverage section is nothing more than the topic, we must read to understand the coverage and meaning given that topic. Not all forms are alike by any means, way, shape or form. Employee dishonesty then is the topic, the coverage is found in the words that come next, and what comes next can be great or terrible, you can’t stop/you don’t understand until you read the whole thing (the policy or Endorsement form).

Property enhancement forms are a great guide to review with your client. Discuss each coverage with the client/Named Insured and when the client/Named Insured shows particular interest or need for one of these coverages or topics, that’s your signal that you may need to offer something broader. So Property Enhancement endorsements are really good tools to uncover specific needs of our client/Named Insureds.

Expiration of the builder’s risk policy
The expiration of the builder’s risk policy occurs based on seven possible events or the soonest of the following depending on the particular policy form. Not all Insurance companies use the same policy terms and conditions for builder’s risk policies.

1. The expiration date shown in the declarations.
2. When the building is accepted by the owner.
3. When the insurable interest of the Named Insured ceases.
4. When the Named Insured abandons construction.
5. When the building has been completed for more than 90 days.
6. When the owner of the building has replaced builder’s risk policy with a property or commercial property policy.
7. When the building has been put to its intended use.

It is important to understand the expiration terms of the policy that you are proposing for the Named Insured. When the building is partially occupied or put to its intended use by the building owner may be an event which causes our Named Insured to lose builder’s risk coverage perhaps before they are finished. It is not uncommon
for building owners to partially occupy structures under construction. If this occurs, it is important to communicate that information with the Insurance carrier. Many carriers will allow the builder’s risk to continue but only after they have been advised of partial occupancy.

Existing Structure Coverage to be noted on the application if needed
Occasionally, we will need coverage for partial existing building coverage as well as coverage for new construction. The need for coverage for the existing structure may not be part of the contract but a necessity none the less. It is not uncommon for building owners to wish to expand their current buildings or completely renovate a current structure. In this instance, we may need to consider coverage for the existing structure as well as new construction. The challenge sometimes can become discovering an accurate value for the existing structure. To accomplish the task of providing a reasonable limit for the existing structure, our best tool will be the replacement cost estimator. If we know the total finished square footage of the whole new finished building, the construction type, and the occupancy of the completed structure, then we can use replacement cost estimator to give us a fair limit for the building or structure in its completed form. We then can subtract the contracted cost of the remodel, renovation, or cost of the addition from our total replacement cost value to discover a reasonable sum or limit to use to value the existing structure. Therefore, total replacement cost minus contract cost of new construction equals the limit for the existing structure. We must separate these two limits. The premium cost for existing structures is different than the premium cost for builder’s risk coverage. Likewise, is important that we advise the Insurance carrier of the need of existing structure coverage because if we do not do so, no coverage will be provided for the existing structure. Therefore, it is important to understand the entire risk to the owner or the contractor which may include some property to which damage may occur during the construction process.

Other builder’s risk coverage limits for the application
Builder’s risk policies often contain several sub limits of Insurance. Typically these limits are offered by the Insurance carrier as part of their builder’s risk form. These limits may be set limits or limits that are derived as a percentage of the construction or insured project limit which is discussed. Many of these limits may be changed or increased. For some Insurance carriers many of these limits may be included in the total cost of construction. The reason for sub limits is typically not to provide additional coverage but rather to limit coverage for specific instances, certain perils like flood or earth movement/quake. But, sub limit can be limits which are in addition to the project or location limit as well like expediting or extra expense and soft cost. For each you must read the form. Here is a list of typical sub limits which can be found on a builder’s risk policy.

1. Property in transit, aggregate or per conveyance
2. Property located in a temporary off-site storage or off-site staging areas
3. Expediting and extra expense
4. Debris removal (after a covered loss)
5. Trees, shrubs, and plants
6. Architects’ and engineers’ fees
7. Office and construction trailers and their contents
8. Ordinance or law coverage
9. Contract penalty
10. Tower crane re-erection expense
11. Named windstorm coverage
12. Flood coverage
13. Earth movement or earthquake coverage
14. Pollution or contamination cleanup
15. Fungus, wet rot, dry rot, or bacteria coverage
16. Soft costs

These coverages may or may not be included automatically. In fact these coverages may or may not be available. What is important to understand is that these coverages are separated from our policy limit and therefore it is up to us to discover which of these coverages have meaning for our Named Insured and that we will need to add to our policy. Contracts may require these additional items. But we need to consider these additional coverages for our Named Insured whether contractually required or not.

The builder’s risk policy is written in consideration of the entire new construction project. If our client Named Insured is not the building owner or general contractor or one of the main parties to the construction contract we may need to consider another Inland Marine policy coverage form. Subcontractors or trade contractors or artisan contractors typically do not construct entire buildings but rather perform a specific task during the construction. For example, electricians, plumbers, painters, bricklayers, steel erectors, and drywall contractors to name a few may perform very limited tasks or a specific, limited role during the buildings construction. Many of these trades are not on the building site during the entire course of construction. While a properly executed builder’s risk policy will protect these contractors portion of work and material stored at the worksite or perhaps while in transit to the jobsite these trade contractors are very rarely provided a copy of the builder’s risk policy in place between the owner and the general contractor. Furthermore, most of these trade contractors perform work where a builder’s risk is not in force or necessary. Therefore, there is a need for these contractors to protect their materials until they are installed and/or their work is completed. Installation floaters are mini builder’s risk policies designed particularly for trade contractor’s materials until they are installed and then covered by a builder’s risk, or commercial property policy. The Installation floater protects the insureds materials, or materials of others in our insured subcontractors care custody or control until those material become an attached part of a building. The installation floater Inland Marine coverage policy form is primarily designed for a single Named Insured but is generally written for multiple potential jobsites. The installation floater has an annual policy term and pertains to the operations of the Named Insured and not a specific premises. The Installation floater is a property policy which covers Building materials which may be stored offsite in a temporary location, in transit, or at the construction site and until those materials are installed, at which point the Installation floater coverage stops.

Generally, unlike the Builder’s risk, an Installation floater is not a contractual requirement. However, contract agreements between Sub Contractors and the Prime or general contractors often have a provision that states, the subcontractor is responsible for the deductible amount in the event of a builder’s risk claim or loss to that subs unfinished work or materials. As we mentioned, builder’s risk deductible can be quite high, $5,000 to $50,000, depending on the project. The deductible then can become a major issue for a Named Insured Sub contractor. The solution is an Installation floater which is in the control of the subcontractor and they can pick the deductible that works best for them.

The client’s work consist of two parts: Labor and Materials. For Labor we provide Insurance protection with General Liability policies and worker’s compensation policies, for the materials we provide property coverage, an installation floater.

Scheduled equipment to be shown on the application
Like any property policy we must describe the property specifically we wish to insure. For each item of equipment we wish to insure we must provide the following information:

1. The type of equipment, i.e. a bulldozer, forklift, concrete saw, scaffolding, backhoe, dragline, articulated truck, office trailer and so on.
2. The manufacturer of the equipment, i.e. John Deere, Hyster, Cat, Hitachi, Bobcat and so on.
3. List the model number of the equipment.
4. List the serial number of the equipment.
5. List the amount of Insurance for each equipment item.

The amount of Insurance is the tricky part. The first four items we need to know for each item are easy to discover they are fixed facts. But, the amount of Insurance is another story. For all property Insurance the valuation (replacement cost, actual cash value, agreed amount, functional replacement cost) help to determine the Insurance limit or amount. Of the four common valuation possibilities all but one can be relatively easy to determine a realistic amount, limit, or value. We can use replacement cost estimators to determine a replacement cost or functional replacement cost. Agreed amount is an amount agreed by both parties based on appraisal or some other known facts. Actual cash value or ACV is a much harder to pinpoint in advance of the loss or claim. Actual cash value as you will remember is replacement cost less depreciation.

Equipment floater policies can be written on any of the four valuations listed above but by far most are written on ACV. Machinery and equipment like autos depreciate quickly and their value is greatly dependent on the amount of use as well as the condition of the item at the time of loss. Construction equipment is meant to get dirty, to move dirt and rock, cut concrete and steel, and move heavy loads. This is equipment in motion, in use and unlike a building or structure that may stand for a hundred years, mobile equipment has a much shorter lifespan.

Actual cash value, valuation takes into account the fact that due to normal wear and tear this equipment will at some point become either damaged or no longer useful and need to be replaced, (may quickly depreciate in value). It is the objective of the Insurance policy to repair and replace damage property caused by a risk or covered peril which is not fortuitous. Likewise, the goal of the Insurance policy is to put our Named Insured client back into the same financial position after a loss as they had prior to the loss.

The good of unscheduled equipment
Contractors, in particular, use lots of small hand tools. Trying to schedule or list every item would be burdensome and a daily task for our Named Insured client. While losing one or two of these small items at a time may not be financially unbearable, the loss of a group or a trailer full small tools may be painful. Unscheduled tools coverage is a good way to protect from a volume loss of small tools such as theft of a trailer or fire of a toolshed without having to list each individual tool separately.

The bad of unscheduled equipment
The cost or rate per $100 of limit to add unscheduled equipment can be up to five times more expensive than the rate for scheduled equipment. This expense is a reflection of a few factors; small items are more easily stolen and unscheduled items are an unknown to the Insurance carrier/company.

Insurance carriers really don’t like the unknown. This is very important to understand why the application process and details are very important to secure the best coverage and at the best premium for your Named Insured. Understand Insurance carriers rely on detailed information of the risk for which they are providing coverage, the risk they are accepting, when they offer an Insurance policy to our Named Insured/client. This is true for all Insurance policy forms but very visible and easy to see in the distinction between the rates used for scheduled and unscheduled equipment. When Insurance carriers are uncertain of the risk they are accepting they will address that uncertainty in one of two ways. Either the Insurance carrier will decline the risk or they will charge a high rate or premium to accept the risk and may also add endorsements to the policy to limit coverage. In the instance of unscheduled tools it is practical for both parties to allow small items to be insured and what is basically an unknown blanket basis. However, note it’s not cheap and thus is certainly not a shortcut to properly scheduling equipment items.

The application
The application and underwriting for cargo and property in transit center on the following concerns: what property is being moved, how far, how often, by what means, and who owns it. Who owns the property will determine whether we need cargo (property of others) or transit (our insured’s property) coverage. The policy forms for cargo and transit coverage are very similar, but of course differ. For the purpose of underwriting, the information we need to gather is almost the same. The differences and information will center on cargo or motor truck cargo legal liability coverage as to the ownership of the cargo our Named Insured has in their possession.

What property is being moved? We must note on the application.
Cargo and transit coverage is written for a very wide variety of property. The scope of potential property items can range from large construction equipment to frozen pizzas and everything in between. Anyone who has traveled on a highway or interstate as seen tractor-trailer trucks moving down the road. A vast majority of goods in the United States are transported in this manner. Did you ever wonder what was in those trucks? When providing cargo or transportation coverage we need to know. The type of property being hauled tells us a lot about the type of risk we are assuming when we provide Insurance protection. A truckload of steel pipe does not possess the same exposure to damage as a truckload of fresh eggs. Items that require refrigeration for example, will require additional Insurance coverage considerations and underwriting information.

Depending on the policy form we are using, i.e. motor truck cargo, transportation, or trip transit coverage, rest assured there is a list of the types of property which are not covered by those policies. Art, jewelry, stones, and precious metals, live animals, money and securities, and mail are commonly excluded. Items may be considered as pollutants may also be excluded or highly limited. Perils such as spoilage and changes in temperature or humidity may likewise be excluded. This is a big concern for clients transporting fresh or frozen foods in refrigerated trucks. The type of property being moved is a very important consideration for the Insurance carrier and underwriting consideration. Understanding the policy forms provided by Insurance carriers is important to understanding what clients we can protect and the endorsements we may need to protect them.

The commercial property policy list as property not covered electronic data. Additional coverages added to the commercial property sections provides or gives back coverage for electronic data. This does not include coverage for electronic data which is considered stock or is electronic data used to operate the building’s elevator, lighting, heating, cooling, or ventilation systems, or security systems. Commercial property policies will limit the amount of coverage for electronic data to a fixed dollar amount usually $2500. The cause of loss form as to electronic data is modified by the commercial property form to exclude the following: viruses, harmful code or similar damages introduced to a computer system or network caused by or resulting from manipulation of a computer system by, an employee, or any other entity hired to inspect, design, install, modify, maintain, repair or replace that system.

Data coverage is very limited. Even when not excluded, the coverage limit provided is typically only $2500. Operating systems for even small businesses can be quite expensive. Many businesses rely on computers to control their accounting, customers’ accounts information, the entire operation of many businesses rely on specific software or electronic data to operate. The loss of these systems can create great loss to our insureds. A separate Inland Marine policy, electronic data processing equipment coverage (EDP) is designed to address the shortcomings of the commercial property policy.

The EDP policy includes coverage for damage caused by computer hacking, and unauthorized intrusion by an individual or group, employed by the insured or not, and that causes damage including deletion, destruction, or modification to software, alteration, corruption, degradation, contamination or destruction of performance of the software. EDP coverage is much broader than the property coverage and how it is damaged than in the commercial property policy form. The limits of coverage provided by EDP coverage form may be selected by the insured to reflect the proper coverage amount.

Property covered under the EDP policy form includes when selected, the hardware, software including media, programs, and applications as well as data records and proprietary programs. The website server on an off-site can also be covered. Keep in mind we are talking about property coverage so we will need to schedule those coverages we need and schedule the property’s location for coverage as well. The need for EDP coverage is not related to the movement of property but rather the unique type of property we need to insure in the special types of damage that can cause a loss to the specific kind of property.

Limit of Insurance for the application
The limit of Insurance conversation with the Named Insured should be based on replacement cost coverage. When considering replacement cost coverage limit, the amount of coverage should be in consideration of what replacement cost of like operating hardware or software will be at the time of loss. Take into account depending on the hardware or software of the insured, the cost to replace items may be very different than the original cost to purchase those items. The policy coverage form often times explains the cost to replace hardware items as the cost of replacing with new equipment that is functionally comparable to the hardware being replaced. The price of hardware items such as computers greatly fluctuates as new and better equipment hits the marketplace. Likewise, older computers may not have the memory or capacity of newer models which may also actually be cheaper today. It is wise for the Insurance professional to help the client Named Insured discover a reasonable cost to replace their current hardware, computers, monitors, CPUs, routers, and other electronic data processing hardware equipment at today’s prices rather than the cost new of the current equipment.

For software data items the cost to reinstall the programs or applications from the license discs that were originally used to install the program and/or applications if available is the basis for considering a limit of Insur - ance for those items. If the original discs are not available then the cost will be based on the most current versions of those discs which will then have to be purchased as well as installed.

The cost to replace hardware or software includes the cost to put the Named Insured to a functionally comparable condition as at the time just prior to the loss. The Named Insured should not hope to use this coverage as a means of an upgrade to better hardware or software. Certainly they may wish to improve their systems after a loss, but not at the Insurance provider’s additional expense. Any upgrades, improvements, or modifications beyond functionally comparable value of the damaged hardware or software would be at the insured’s additional cost. But the insured can expect a like cost to restore operations benefit from a properly issued and underwritten electronic data processing policy. The insured should provide a schedule of hardware and software including; the manufacturer, model number, serial number, detailed description, and original cost for each item they own and wish to insure. This will greatly help in determining reasonable limits and claims adjusting at the time of a loss. The schedule should be on file with both the Agent and the Underwriter.

Crime policies, based on the coverage form selected, only provide limits of coverage for defined spans of time, for example if an employee(s) steals $1 million over 10 years from a company. To purchase a one million-dollar employee theft policy, we will have very different coverage depending on the policy form. For a loss sustained policy form the Named Insured will only be entitled to losses that occurred during the current policy period or prior policy period depending on when the theft is discovered (within 12 months of the policy term). Coverage is limited to losses that occurred during the policy year and reported before the subsequent 12 months’ timeframe has elapsed. Therefore, only money stolen for only the most recent 12-month period in time will be considered for coverage on the loss sustained basis. If an equal amount or $100,000 was stolen each year over 10 years the maximum possible payable under a loss sustained policy would be $100,000 even though $1 million in coverage limit was provided on the crime policy form.

However, if our Named Insured was written on a discovery coverage form with a $1 million current limit, then all of the prior 10 years’ losses would be payable as long as the claim was presented within 60 or 90 days of the expiration date of the discovery coverage form crime policy. Depending on the coverage form, the limit we select for coverage, especially in regards to employee theft, is considered very differently. For loss sustained form our focus is on what may have be stolen within a 12-month period. But for the discovery coverage form we need to consider what may have been stolen in the past as well as within the 12-month period of our policy term.

Most commercial property enhancement endorsement forms which include employee dishonesty coverage are written on a loss sustained basis and may in fact be even narrower in the extended reporting period provided. As always, a good rule of thumb is to consider the premium cost of coverage we provide to our Named Insured. Coverages which are free or very low premium typically are such because they provide very little value.

Professional Insurance Agent’s task first and foremost is to properly discover and provide protection for our Named Insured’s risk or exposures. To accomplish this, we must ask questions and read the policy forms so that we understand the protection that is needed and that we can provide. At the time of loss our insured will expect coverage and likely much broader coverage than is provided by the policies. We must properly inform our Named Insured of the coverage they have purchased and explained the coverage we provided at the effective date of the policy.

Employee dishonesty coverage provided by a commercial property enhancement endorsement form, a crime policy form written on a loss sustained basis, or a crime policy form written on a discovery basis are all very different. Although, the headline of coverage is employee dishonesty, the coverage details that follows in the text of these policies or endorsements is what matters. Rest assured our clients/Named Insureds do not understand the vast difference in employee dishonesty coverage. It is the job of the Insurance professional to fully explain coverages to our clients/Named Insureds. It is the goal of this text to educate the negotiator of this legal contract called Insurance policies (YOU) the importance of understanding the policy forms and provisions of coverage which are available to protect the Named Insured and that the forms and policy provisions offered by Insurance providers differ.

The Application
Crime applications can be very long. Pay attention to the questions and you will find out that purchasing a crime policy is also like purchasing a risk management program. The crime policy is a property policy so we need to list the primary or principal locations as well as additional locations. We need to advise the subject or subjects of Insurance we wish to provide for our Named Insured. Although there may be many different subjects of Insurance or insuring agreement elements available, our insured may only be interested in or need a select few of the coverages available. The following are menu items from which we may select coverage on our crime policy for a Named Insured.

1. Employee theft
2. ERISA coverage
3. Forgery or alteration
4. Inside theft of money or securities
5. Inside robbery or burglary
6. Off-premises or outside coverage
7. Computer fraud
8. Funds transfer fraud
9. Counterfeit

For each of the subject of Insurance that you choose you may assign a different limit of coverage. Depending on the basis of coverage (discovery or loss sustained coverage form) in the specific risk to each type of coverage listed above, the limits required or needed may be very different. Before you can discuss limits of coverage with your client Named Insured you must be able to frame the potential for loss or payment of a claim. For employee theft we should consider, depending on the coverage form, whether we need protection for prior acts (for many years) or just the current policy term. ERISA coverage, which is typically mandated by the federal government for employers, sponsor employee retirement accounts or programs or who may have self-funded group health Insurance benefits programs for their employees, the limit is most likely a required percentage of those funds held within the retirement account on behalf of employees. ERISA coverage can also be provided by a bond. Inside and outside theft, robbery, or burglary relates to funds that may be held at any one time on the insureds premises or being taken off-premises such as to a bank. Computer fraud or electronic funds transfer fraud may be limited based on predetermined electronic transfer or EFT limits placed on our Named Insured’s bank accounts. For each of these potential coverages then considerably different limits of coverage are necessary. Our questions then are relative to each specific line or subject of coverage. Once we have addressed the subject of Insurance in the limit of Insurance the rest of the crime application is centered on underwriting questions which will determine the acceptability of the risk. But we will also discover these questions will help reveal our Named Insured’s exposures to loss and give very good insight and how our Named Insured may protect themselves from crime losses. So as you read through these questions consider what additional questions we may have depending on the answer. How may we use these application questions to provide risk management and loss control services to our Named Insured?

What protection does the Cyber liability policy provide?
Cyber liability centers on criminal activity where the targeted goods are the data of our Named Insureds’ customers and employees. Criminals target our Named Insureds’ websites, computers, or networks to gain the valuable information held by our Named Insureds. These criminals may steal information or cause damage to computer systems or networks of our Named Insureds or both. Criminals steal credit card information, identity information including Social Security numbers, dates of birth, addresses, and driver’s license numbers in order to defraud or harm our Named Insureds’ customers. Cyber criminals may also seek to damage the Named Insureds’ business reputation or otherwise harm the business of our Named Insured for the sake of hate or revenge. Any business that grants online access to clients or conducts e-commerce, collects, and stores client information or employee information on a computing system connected to a network or the World Wide Web is exposed to these criminals.

Cyber liability policies are designed to pay damages and claims expense for the legal liability of our Named Insured resulting from cyber activities such as obtaining, disseminating, or processing data content in cyber activities including: damages caused by covered causes of loss errors or omissions, failure to render professional services, and by an incident, or wrongful act.

The terms above and below underlined and in bold are defined terms.

Damages means monetary settlement, judgment or award and may include punitive damages or exemplary damages where allowed by state statute. Damages typically may not include future profits, lost income, amounts not legally obligated to pay, and contractual obligations, penalties or increased cost to perform contracts and any fines or penalties.

Covered causes of loss is part of the coverage section of the policy and may be broken into sections including;

1. Accidental damage or destruction of the electronic media that stored digital assets or power supply failure and/or electrostatic backup.
2. Administrative or operational errors or mistakes which means accidental/unintentional, or negligent acts, mistakes, errors or omissions in; data entry of your electronic data or the handling, modifying, maintenance, development, or creating of your/Named Insured digital assets and may also include on-going computer systems operation or maintenance by your/Named Insureds employee or a service provider or outsourced IT service provider.
3. Computer crime and computer attacks are an act, mistake, negligent error or omission in the operation or handling of your data/digital assets by your/Named Insured’s employee, or service provider or outsourced service provider that fails to prevent or hinder any of the following attacks meant to cause harm to your/Named Insured’s computing systems including:
a) Denial of service
b) Malicious code
c) Unauthorized access
d) Unauthorized use

Summary
Cyber-attacks can cost millions of dollars in losses and ruin our Named Insured’s business reputation. Over the last several years many retail giants, financial institutions, and even Insurance providers have fallen victim to cyber-attacks and customer data theft. All experience a loss of reputation and business income from these attacks. Business interruption coverage is an essential part of any good Cyber liability policy. Although, we certainly cannot write limits, i.e. enough to cover the full revenue loss our customers may experience due to a cyber-attack, the process of purchasing and underwriting a Cyber liability policy provides valuable risk management and loss control suggestions that may help prevent an attack from occurring. Therefore, beyond the Insurance protection we can provide is the loss control and risk management strategies advice we can give our Named Insureds. Cyber liability coverage need is very broad and distinctive coverage we should discuss with all of our business clients. The creativity and abundance cyber criminals only heightens the need for this valuable protection in one form or another for all of our business clients. Before we can write a Cyber liability policy, like all Insurance policies, we need to fully understand the coverage we can provide and what coverages our Named Insured needs. For Cyber liability coverage this is a very tricky proposition.

State and Federal rules can come into play when a cyber-attack has occurred. States have specific notification rules which must be followed. The rules protect the consumers and require effected business to communicate with their customers in a timely and orderly fashion. Following the correct state specific Notification guidelines is expensive, does the policy form your presenting address these cost?

The CGL Application

Do your duty in all things; you cannot do more and should never wish to do less. To perform one’s tasks as promised and expected is not exemplary, but required.

When a duty is owed (an obligation to either act or not act) and that duty is breeched (the obligation was not reasonable fulfilled) and harm or damage occurs as a result, a Liability claim is not far behind.

Negligence is one of the key sources of Liability and the primary cause of loss we will focus. Our client/Named Insured, no matter their occupation has a duty to others. Businesses charge money for goods or services and their customers expect those goods and services will at the very least not cause them harm. The commercial General Liability policy is designed to protect our client/Named Insured from the unintentional acts: the accidental actions that cause bodily Injury or Property damage to others. The customers of our insureds are not the only party exposed to the Products or acts of our Client/Named Insured. Others may also be harmed by the operations of our insured.

“The importance of a well-constructed application cannot be overstated when it comes to the Underwriters’ perspective. Oftentimes it is an Underwriter’s first impression of the account itself, but it is also a first impression of the Agent’s work as well. It is important to understand what an application submission represents to an Underwriter. It is a request for a dedication of time and effort; it is a request to be prioritized above other tasks; it is a request for a commitment. Thus, what is an Underwriter’s perception if that submitted application is haphazard, incomplete, and appears to be thrown together in a lackadaisical fashion? If your representation to me is one of being unprepared and uncommitted, then why should I feel my time would be usefully spent working to underwrite your risk? Conversely, a well-constructed and completed application shows the Agent has made a commitment of time and effort, be lieves in their opportunity, knows the risk and will be able to speak authoritatively about the operations of the prospective insured. This effort will quickly elevate an application to the top of the Underwriter’s workload: gain priority.

“Make no mistake, it is abundantly clear to an Underwriter when an application has been put together with time and effort. When effort is there from the Agent, then so too will the effort be returned by the Underwriter. We will mirror your dedication and commitment to an account, and it all starts with the application.” (Kyle M. Fry is a commercial lines Underwriter with a national property and casualty insurer. Kyle has 12 years’ underwriting experience and is a contributor to this text.)

The focus of coverage offered by the Commercial General Liability (CGL) policy are unintentional acts for which our client/Named Insured is responsible or held responsible. Criminal or intentional acts intended to cause harm are not covered by the CGL. Furthermore Acts by the Named Insured involving a faulty product or faulty workmanship are also not covered by the CGL.

The Insured’s Duty requires the insured to operate their business in a manner and to the full expectation of the value of their field. That’s to say, if the insured is a plumber, then the insured is held responsible to know how to perform the proper tasks as a plumber, to act within the normal expectations of the field or discipline. Let’s say for example, I decide I want to be a plumber because I heard plumbers make a lot of money. I have no training what so ever as a plumber, but I did buy a book on plumbing and I’m pretty sure I can do it. I get my first call to fix a toilet. I have never done this before but I have my book and a wrench and I’m going to charge $50 per hour, so I’m going to make some money. Because I have never fixed a toilet before, it takes me 4 hours to, well, give up. I charge $200 for my work and leave with my money before the client has a chance to test my work. Luckily for me, I bought a General liability policy before I started my Plumbing business. So when the toilet leaks water everywhere (Because not only did I not fix the toilet, I made it worse.), the Insurance Company can pay to have the work corrected and I get to keep my $200. The CGL will not pay for faulty workmanship that could have been avoided by simply performing tasks correctly. The point is the CGL is not meant to support a business or persons who don’t know what they are doing. The CGL is not a crutch for poor performance, slipshod procedures, bad products, or reckless work.

The Commercial General Liability Policy is designed to pay for damages for bodily Injury (harm to someone’s body) and/or Property damage caused by an Occurrence. An Occurrence is an Accident. An accident is not defined by the CGL policy. Several State Supreme courts have thus deliberated an interpretation or definition of what an accident means. An accident has been considered by these Supreme legal bodies to include two defining parts. First, that the act was unintentional, this is probably what we all think of when we hear “accident.” I didn’t mean to do it; it was an accident. The second part of the court’s definition is a bit stricter: an accident must also be beyond the control of the party. That’s a lot different. Not only must an accident be unintentional, it must also be beyond the control or care of the injurious party.

The Application
The General Application section of this text applies to the General liability section as well. You will recall from the earlier text the importance of correctly and thoroughly identifying the names insured(s). Property policy’s respond to the “Described Premises” Inland Marine policies likewise focus on property items at a Described Premises or Scheduled Items. Location is key.

The Commercial General Liability Policy focuses on coverage for the Named Insured with very little (the United States, its possessions, Canada, and Puerto Rico) requirement to location. Named Insureds, Insureds, and Additional Insured are the Key to the CGL. The very first paragraphs of Commercial General Liability policies identify who the CGL coverage protects. The most important and broadest coverage is given to a (the) Named Insured shown in the declarations section of the policy.

The correct listing of Named Insureds and Additional Insureds (we will discuss later and whom are added by an endorsement) is the first important task in completing the General Liability Application. The CGL responds/ Provides coverage for the specific Named Insured. Other parties, like employees acting on behalf of the company, are insured in that they act or their actions are on behalf of the Named Insured, and defined later in the policy as “who is an Insured.” But coverage for all persons, all types of Insureds, relate specifically to the Named Insured.

Classification and Classification code to use for the application
Before now you should probably know what your client/Named Insured does for a living. Hopefully the whole reason you called on this client is because you had some idea of their occupation. Perhaps the business name tipped off what the client does, like “Pinkies sofa sales, Inc.” I bet Pinkie sells Furniture. Insurance classification is specific. Each type of operation is divided into separate Hazard or Class codes and all carry their own rates. The classification manuals contain more than a thousand classification possibilities; our job is to choose the correct codes that describe the operations of our client. Sometimes that’s very easy and sometimes it’s difficult, but it is always important we are correct.

Commercial General Liability class code are shown as a number, usually a 5-digit number with a brief description. These Numbers and titles are published by Insurance Services Office (ISO) as part of Premium Audit Advisory Service (PAAS). The Class codes we use are part of the Insurance Premium Auditors handbook. The CGL policy is subject to Audit. Found in the conditions section of most Commercial General Liability policies is a provision for Audit or Premium Audit. The Audit condition or provision of the policy informs the client named/ insured that the premium shown for the CGL policy is in fact an advance or deposit premium, an estimated amount or charge and that after the policy is over, the Insurance carrier has the right to examine the books and records of the insured to discover what the actual incurred charges should be. Audit may change class codes and premium basis based on what the client/Named Insured actually and factually exposes the Insurance carrier to risk during the year. In other words, we need to get the codes correct up front. The codes determine the rates and depending on the code, the rate could be greatly different. If at Audit it is found the class code used was incorrect and is thus changed to the correct code which perhaps carriers a much higher rate, our client/Named Insured is going to get a bill. The policy requires the client/Named Insured to not only comply with audit but keep records and provide them to the Insurance carrier’s auditor when requested.

Generating the correct class code is very serious business and your work will be checked. The consequences of incorrect classification can be devastating to your client’s wallet. Likewise, using the wrong code when the correct class code is cheaper will probably mean your premium quote will be higher than better Agents and you likely won’t write the account to begin with.

Intentionally misclassifying a client is fraud. Intentionally using an incorrect classification code because it generates a lower premium or because the correct code is unacceptable to an Insurance carrier is a material misrepresentation of the truth. Fraud also requires harm. An Insured may well feel harmed when they get a large bill at Audit. The Insurance carrier may feel harmed when a claim is presented based on an operation of the insured they didn’t know the insured performed. The client has little defense from a material misrepresentation made by the Insurance Agent when it comes to the CGL policy. They will have to sue their Agent most likely for remedy. Fraud is a serious crime.

Fraud is not the only concern. Your Insurance carrier may wish to terminate your and/or your Agency’s relationship if it is found that you have intentionally lied to them. Trust is a nonnegotiable tenant of the Insurance Company–Agent relationship. An Agent without an Insurance Company is not an Agent. The Client/Named Insured may well not wish to ever do business with you again, and tell all their friends your bad news as well. Loss of your reputation can be devastating. Fraud can cost you your job, Insurance Company Partnership, clients, penalties, and fines, revocation of your Insurance license and even Jail time. Some or all of these nasty outcomes may occur.

Correctly classifying your clients’ Named Insured is serious business.

Reading and understanding the Class code descriptions
Oftentimes mistakes are made in regard to class code assignment when the Alphabetical guide alone is used for determining a classification code. The class code manuals often contain an alphabetical guide which should be used to search for the class code and then use the manual to find the description to read.

A keyword search of online databases often produces the same level of information. Always read the full description and do not rely on the class code title as information to determine if the code fits our client’s operations. Each classification code reference contains far more than just a Number code. The class code contains a definition.

The definition describes what operations are assigned or covered by this code and many times what operations are not. The Code description includes the premium basis used for the particular code. Premium basis can be either, payroll, Cost, Sales, Area, or number of units. We will discuss premium bases in more detail shortly.

Finding a class code that sounds like what the client does is simply not enough. You should understand by now that Insurance uses its own specific definitions for terms. It is always a mistake to not read fully, and understand what the policy specifically means. Class code are then just more of the same.

There are 6 different class codes for Apartment buildings, and 4 separate Condominium class codes. There are 5 different codes for Carpentry work. There are 19 different codes for Gas or Oil well businesses. There are 7 different codes for painters and 5 different codes for Silo erectors. Restaurants are classified by 14 different possible class codes. For Pet stores, there is only one class code, let’s discuss what we find when we read the Classification description.

Indemnity or indemnification section of the contractor’s contract
(Also known as Hold Harmless clause)
The Subcontractor (our client/Named Insured) shall protect, defend, and hold harmless and indemnify the contractor (and/or owner) and their respective officers, Agents, and employee from and against any and all claims, demands, losses, fines, penalties, expenses, including attorney’s fees, injuries, liens, damages, and liabilities of every nature, including contractual liability losses, arising from or relating to the subcontractors (our client) acts or omissions, or work performed by the subcontractor, its employees, other subcontractors (hired by our client) or Agents, regardless of whether the contractor (or owner) was negligent, unless the contractor (or owner) was solely negligent. Without limitation, this indemnification shall extend to all losses arising from the Subcontractors (our client) violation of any local, state, or federal laws, regulations, code, statues, or ordinances. All parties waive all rights against each other of subrogation. (This means both the clients right and their Insurance carrier’s right of subrogation as well as anyone else).

This is a basic section which can be found in every contractor agreement. The one above is pretty standard; some are even more aggressive. The question for us as an Insurance professional is; can we provide coverage to our insureds who sign this contract and are bound by this agreement? The answer is no, not all of it.

Oftentimes, these sections will conclude with a request for a specific Additional insured and waiver of subrogation form number. This information also may appear on the Insurance requirements sheet, which at this point you should start to realize doesn’t fully protect our client, but rather should be considered as the minimum proof of coverage which needs to be provided, not the full amount of coverage that is required by the contract. All too often, Agents assume all they need to do is meet the Insurance requirements on the certificate of Insurance request form and they have done all they need to do. They are wrong. While it is true, we cannot hope to provide all the coverage required, we need to independently seek to add endorsements whether requested or not to protect our subcontractor client/Named Insured. Let’s break down the requirements as given above one by one.

First problem: against all claims and liabilities of every nature. Two components to this requirement, the perils (any and all claims) and the policy limits. No CGL provides coverage for everything, but this phrase isn’t just talking about the CGL, this wide statement would include auto related claims, and worker’s compensation claims.

As for limits, the above agreement states, “without limitation.” Furthermore, any subcontractors hired by our client subcontractor are now our client’s problem as well. We need to address this to protect our client as best we can. But we need to make sure our client understands their Insurance policies don’t cover everything. Now is a good time to discuss what the policy does and doesn’t cover.

The biggest hole in the CGL, or exclusion is “your work.” The GCL will not cover faulty workmanship, but rest assured, the contract expects the subcontractor our client/Named Insured to absolutely cover the cost to repair or replace their faulty workmanship. This requirement is often found in another contract section entitled Warranties and Guarantees.

Certificates of Liability Insurance

Talking about the need to read Insurance policies and forms, the place we see the most persistent problems /mistakes made by Insurance professionals (don’t read the forms and make mistakes) are when we look at the certificates of liability forms that get presented to our clients by their subcontractors’ Agents or account managers.

The Certificate of Liability Insurance (COI) is meant to only be a snap shot of coverage the day the COI was issued. The certificate itself, in the very first box, at the top of the form, in bold type, explains that the certificate is for information purposes only and is not an Insurance policy and provides no protection. Some States Directors of Insurance have gone so far as to produce directives, or office statements that they, the state’s Departments of Insurance will not enforce a certificate of Insurance. The first box clearly states that items shown on this form do not alter the Insurance coverage. Adding an Additional Insured is done by endorsement which is an alteration/modification/change of the Insurance policy.

The second box at the top of the form is more specific to our discussion. This box in bold caps starts with the word IMPORTANT. What follows next is a warning and directive to the reader of this form (Certificate of Insurance) that tells the reader that if they have been listed as an Additional Insured or promised waiver of subrogation, those are policy modification which may require an endorsement.

Furthermore, the statement continues, that a statement on the certificate of Liability Insurance as to Additional Insured or waiver of subrogation does nothing and thus may or may not be true. I paraphrase, the actual language to illustrate what anyone who read this should come to realize. If I’m supposed to be an Additional Insured, I need a copy of that Additional Insured endorsement and not this piece of paper!

Typing someone’s name as an Additional Insured on the certificate of Liability Insurance (COI) means nothing, is not the correct procedure. Per the certificate of Liability itself, it tells us: IMPORTANT, don’t do that. How can this happen? Well, because our clients are asked by the Contractor or Owner to provide that information on the certificate of coverage form and so that’s what gets done. Does that make it right? No! Have I ever done this or the account managers I work with? Yes, but not in the last 10 years or more. I know this happens and why it happens because I have done it. I will say, however, I did always add to the policy the Additional Insured endorsement form like I was supposed to, I just flubbed on the certificate. But how would anyone know that was true?

Without providing the correct form, I have not provided any proof I did what needed to be done correctly. I tell my contractors who use subcontractors the correct certificate of Insurance procedures, specifically to require the endorsement forms to be attached and sent along with the certificate (COI). What happened next is why I have spent so much time talking about Additional Insureds.

Most of the Certificates of Liability forms my contractors were getting from their subcontractor had at least one major error and many were completely incorrect! Problems include: blanket forms which may omit Ad ditional Insured coverage after the sub has left the work site (contract Warranty section). The contracts often require coverage to continue after work is completed and often times up to one year after all work is completed. Incorrect form additions or only copies of forms which have not been executed (policy number should be typed at the top left corner of the form) properly, and on and on. I just couldn’t believe so many Agents were not paying attention to this important coverage for their insured!

My Insured has an enforceable contract. Is there proper Insurance in place to meet the terms of this contract? Certainly, my client (the Contractor or Owner to be named as an Additional Insured) has a vested interest in the subcontract providing the correct financial instrument (Insurance) to back up their promises found in the contract they signed as well.

“The role of the Underwriter is to review the clients operations and determine if the clients risk profile meets the acceptable appetite of the Insurance Company. If so, then we will present policy terms and premium cost to the Agent. The Underwriter must rely on the Agent’s application to paint a full picture before the Underwriter can judge the account. Underwriters are given production goals. To achieve our goals we must rely on Agents to give us good opportunities. Our goals are both volume and quality based. So, not only do we need Agents to send us applications, we need complete detailed information we can trust which paints a picture we can rely on. Underwriters want to write policies for Agents. That’s our job, our primary focus, but we don’t guess. We learn quickly which Agents provide us good reliable information and will help us reach our goals and which Agents only waste our time.” (Brenda Scalzo, CPCU, CIC professional designations and with 30 years’ experience as a commercial Underwriter. Brenda is a contributor to this text.)

So far we have discussed Property, Inland Marine, and General Liability Insurance products. The Business or Commercial Auto product combines elements from all three of these separate policy forms. The Business Auto policy can insure the clients property (Auto physical damage) while mobile and protect the client from liability which stems from the operation of Autos (damage done to others). When completing the application for our client/Named Insured we need to pay close attention to who is an insured, what vehicles are covered and what things are excluded. Coverage is only extended to those who are all three, 1. An Insured, 2. For a covered Auto, 3. Not otherwise excluded. When completing the application for business auto coverage it’s important to understand and properly identify who is an Insured and what autos are covered and what operations maybe excluded. When an auto claim occurs, there are three entities which will need liability coverage: the business, the owner of the auto, and the driver. During the application process it is important we know who is an insured and who cannot be an insured. Ownership of the Auto is a very important factor in determining coverage. What autos are “covered autos” will be determined by the application, but misidentifying a “covered auto” even when we schedule the vehicle on the policy can cause problems as we will see. We will find that drivers are a principle concern for business auto coverage for both the Client and the Insurance Company. We have much to discover to properly protect our client/Named Insured with a Business Auto policy (BAP). Like all other Insurance policies, the correct and full information gathered for the completion of the Application is critical to proper underwriting and protection of our client. We will discuss each of the following application requirements in detail.

A word about Personal Auto Insurance:
With the explosion of online, call direct, apply over the internet personal Auto Insurance products there has been a troubling decline in the quality of some Personal Auto policies which are being offered to serve the lowest price frenzy with some online providers. The focus of online personal Auto advertisements are price, “We provide minimum limits” or “Can make you legal, for less.” As I have warned throughout this text, read the policy. Lower price almost always means less coverage. Insurance is a complicated product, quality is often hard to discover, or lack thereof, without a trained professional eye. like the commercials that say something to the effect, “The average person has saved $500 who switched to our company.” These companies don’t tell us how many people didn’t switch because their price was too high! I wonder what percentage of people who get a quote actually save $500. All the advertisement really tells us is it takes an average of $500 for someone to switch to that company. People call because they assume they will save $500, but in reality they didn’t listen closely to the pitch. What if only 10% of the people that call actually save any money and then only 5% change because they saved at least $500? Some online companies offer a name your price option. You can pick the coverages you want (but at least the minimum required by law). These sites do explain fairly well what the options are, but how important is the option for the client? Does the client really understand? Focus is on price above all else. Price is always important, but only as a component of value. Value in the world of Insurance requires a depth of understanding. Words don’t always mean what we think they mean broadly (defined terms). Insurance is complicated. Point is, don’t just buy a PAP, instead purchase a good PAP.

Business Auto Coverages on the application

For the application we will need to advise the Insurance carrier what coverages we need for our Named Insured. There are several separate and distinct coverages we will need to identify on the application as to the coverage limit and to what that coverage will apply, namely what autos. For the application we will need to identify coverage for:

1. Liability
2. Personal Injury protection
3. Medical payments
4. Uninsured motorist coverage
5. Underinsured Motorist coverage
6. Hired/borrowed liability
7. Non-Owned Liability
8. Physical damage coverage for Autos
- comprehensive coverage
- collision coverage
- hired car physical damage

For each of these coverages we will need to choose a limit and a description of coverage, indicated by a symbol. We will find each item of coverage we listed above has a separate coverage role to play. In this section we are defining what is a covered Auto. We don’t change who is an insured. But who is an insured refers frequently to “a covered Auto” or in regards to a “covered Auto.” We are defining in this section of the application, what is a “covered auto” for each item above.

We indicate on the application what vehicles we wish to be “covered autos” buy using a numerical symbol 1, 2, 3, 4, 5, 6, 7, 8, 9 or 19. Each symbol indicates the meaning of a “covered auto.” Most symbols are only used to describe covered autos for certain lines of coverage, we don’t use one symbol for all coverages, but we usually have at least 2 choices for each coverage except for hired/borrowed liability and non-owned liability. These are coverage options expressed as a symbol 8 and 9 (respectively) but also shown on the application as a separate choic: Yes or No. I suggest you always say yes for both of these coverages, Hired/borrowed and Non-owned liability.

I write commercial Auto/Business Auto policies to protect the Legal entity that is my Client/Named Insured. I do not try to write Business auto policies to provide coverage of protection for Human beings who think it’s cheaper or better to add their personal autos to a BAP, or wish to use the business auto policy to replace the correct practice of buying their own PAP policy. Rather, I think, to provide the best benefit for my Human clients is to provide them with a better option and product all together than a BAP, a Personal Auto Policy.

Writing a business auto policy is really a very simple task which becomes difficult when we start to try and insure things the business auto policy doesn’t want to insure: personal risk. We can add endorsements to try and accommodate our client who wants so very badly to make the business protect their personal risk, but it’s just not the best thing to do for our Insurance carrier, client/Named Insured, or our client human being. Agents struggle with trying accommodate an important client/human who wants to save money by putting personally owned vehicles on a company policy instead of explaining properly why that is not a good idea from either a coverage or price stand point. Many Agents try and use endorsement after endorsement to fix what is not broken. We use an oven to make bread and a toaster to toast bread. You can toast bread in an oven, but you can’t make bread in a toaster. A personal auto policy can/will respond to its Named Insured in regard to business activities (most). But a Business auto policy doesn’t want to respond to personal auto exposures, like trying to make bread in a toaster, it’s just going to be hard to do and a mess and does not work very well.

Scheduling Autos and Physical damage coverages for Covered autos we must note on the application
As we said in the start of this chapter, the business or commercial auto policy combines Property and liability coverages into one form. Until now we have been talking about the liability. It’s time to discuss the property coverages provided by the Business Auto Policy. The application is where we identify which vehicles we will schedule are to be covered for property damage. We indicate that intention by using one of the symbols we previously discussed. Symbols 2, 3, 4, 7, or 8 are the possibilities and we will make a selection for the two separate physical damage causes of loss coverages, Collision or other than collision (comprehensive) for our Named Insured. Property coverage for Auto is divided into two causes of loss policy forms. We can select either or both per any particular vehicle. With the symbols above, note the absence of symbol 1, any Auto and Symbol 9 Non-Owned Autos as options for physical damage coverage. For our discussion of physical damage coverage we will first discuss how we add autos to the Business Auto Policy, the specific application information we need to add a covered Auto, and the classification of those autos. Once we have added Autos we will discuss the difference between Collision and comprehensive Physical damage coverage and what is needed to select these options for coverage.

1. What information do we need to schedule an Auto?
2. How do we classify an Auto?
3. What is covered by physical damage?
Collision
Other than collision or comprehensive coverage

Scheduling Vehicles on the application
For each Auto we need to add to the BAP policy we need detailed information about that Auto. The easiest way to gain the majority of the information we need for the commercial Auto application is to obtain from the client/Named Insured a copy of each vehicle’s registration.

Class code development is rate development.
Commercial Auto rates depend on the specific information of each vehicle. The cost to insure a private passenger vehicle is not the same as a dump truck. A vehicle that is used for delivery is not priced the same as a vehicle used to take tools to a job site. Vehicles that travel long distance are priced differently than vehicles that stay relatively close to home. Heavier vehicles cost more to insure than lighter vehicles. It is very important to discover the correct information about each vehicle and properly complete the application. The cost to the insured depends on correct information. For the most part, adding the correct pieces of information on the application as I have outlined above will give the Underwriter what they need to generate the class code. When you receive your quote, you should review the Auto class codes. It is likely the part of information we gathered and placed on the application will not appear on the quote, but rather just a 5-digit number, class code. For the Agent to make sure that premium effecting classification is correct, we need to know what those numbers mean. The Auto class code rating chart, rules and definitions are available through Insurance Services Office (ISO). As I mentioned in the general liability section, Agents should subscribe to an online service that gives access to the ISO rating information. These are very important tools all Insurance Professionals need. Knowledge is always Key and King. Access to the library which holds this reference material is highly advisable, if not mandatory to perform our tasks as intended and expected. Now that we have properly identified the Auto we can determine Physical damage coverage. Keep in mind whether we add physical damage coverage or not, we still must complete the above application operations for all vehicles.

“A complete submission makes everyone’s life easier. It tells the story of the operation and helps the Underwriter make more informed decisions. It (complete application) also has the ability to establish a trusting relationship between the Agent and the Underwriter.” (Melissa Worrell, Underwriting Supervisor, 14 years’ experience in workers’ compensation underwriting and contributor to this book.)

Worker’s Compensation (WC) is a unique Insurance coverage. Worker’s Compensation is a statutory coverage. The bulk of the policy is in fact State statutes or laws. Who is entitled to benefits and what those benefit consist of, are all determined by each separate States governing body (legislature). For WC, then we really only have one, State specific policy form to contend with and understand. But for clients and Named Insureds who conduct business operations in more than one State, we will need to add that State’s statutory coverages. For each State, we need a separate, specific, statutory policy form. We may find we need more than one Insurance carrier to provide coverage for all the State’s specific coverage our Employer/Named Insured needs. If our client/Employer/Named Insured operates in 7 different States, we will need to provide 7 different State specific statutory policy coverage forms for the insured. We may do this with one, or more than one, Insurance provider. Unlike other Insurance lines of business such as General Liability, Inland Marine, and Business Auto coverage forms, Workers Comp policy forms don’t cross state lines. Property coverage is specific to an Address/premises, General Liability and Commercial Auto (BAP) have a wide coverage area including the United States, its possessions, Canada and Puerto Rico. Worker’s Compensation is State specific. The coverage territory is limited to each States boundaries separately.

Other states coverage is nothing to mess around with. 3.C will provide meaningful coverage, especially for business travelers who drive through or fly over lots of States. Consider 3.C coverage as just passing through coverage. But when a location, destination, worksite, office is located in another State, list that State as a 3.A State. To list a State as a 3.A State we need to provide an address in that State (coverage is not address specific, it’s whole State specific) for the Underwriter, a classification code and payroll. It’s not that there is no coverage under 3.C. There is coverage here. The point is relying on 3.C coverage is dangerous. Have a good open dialog with your employer/Named Insured. Make sure they tell you when they work out of State or if they have an employee working from home in another State and add State specific (3.A/named State) coverage. Don’t find yourself arguing with a claims adjuster after an injury or death about statutory coverage. Don’t have to call your employer/ Named Insured and advise them they may be sued for wrongful death or an unsafe worksite because you relied on 3.C other States to provide statutory protection. When you add States to 3.A, you’re done. Your client is protected to the fullest extent of the law. If you rely on 3.C coverage, well, maybe you’re OK, maybe your client is OK. Why settle for a C when you can have an A?

You will find that each different State has their own premium rates for each classification of business operations. The rate for a Plumber in Kentucky will not be the same rate for a plumber in Indiana or Texas, or Vermont. Each State develops their own rates. So when our Client/Employer/Named Insured works in a State different from where their main premium is calculated, their cost per $100 of payroll (premium cost) will be different in a different State where they conduct business or have a separate location or Employee working.

Many times we will find that the worker’s compensation carrier we want to use (has the best rates) is not licensed to do business (admitted), in all States we need for our insured employer. Really this is the only reason we usually ever have a 3.A State issue to begin with. Agents mistakenly relay on 3.C other states’ coverage as true statutory coverage, and it’s simply not.

We must always ignore “price” when considering correct coverage. We cannot write Insurance policies based primarily, or with, pricing as only objective. We must get the coverages correct first, then find the best price, the order is paramount to correct and best protection for our client/Named Insured/employer. Premium dollars “price” is always important to our clients, but don’t sell less or improper coverage because it’s cheaper to do so. This is a careless and potentially damaging practice. Don’t sell defective products. Our clients purchase Insurance to protect them from financial loss. If we sell them a policy that doesn’t cover their business operations, especially when we could have, then we have provided a defective or incomplete product. Would you buy a car with only three tires?

The Insurance Professional is legally liable when we make an error or omission in providing or advising proper coverage. Because Worker’s Compensation coverage is readily available and can be reasonable procured, there in really little defense for providing insufficient coverage, missing a tire (State Statutory coverage form). Be warned!

Keep in mind, claims adjusting services and loss control services are very important considerations, but for the most part and unlike all the other coverage forms, Worker’s Compensation policies are all the same as long as they provide Statutory Coverage State by State. It may be cheaper to have different/multiple Insurance carriers covering the needed statutory States, rather than one Insurance carrier covering all States. It takes a little more work for the Agent, but may produce a significant premium savings for the Employer/Named Insured.

Using multiple WC Insurance carriers may also be a necessity. We may write a WC policy with an Insurance carrier who is licensed and admitted to all States, but limits or prefers not to provide named State coverage in a particular state due to the Insurance providers own history with a particular State. Each State has its own rules, and own specific rates. Each Insurance carrier has its own preferences and experience with each State. It is not uncommon to find a carrier who will from time to time suspend writing coverage for a State (usually based on a Statute change). Or, some carriers will have premium size eligibility rules to add particular states, and not wish to add a new States coverage when the estimated premium will not reach that particular internal rating rule.

If you find you don’t represent a Worker’s Compensation carrier who offers coverage in a particular State, or won’t issue coverage in a particular State, then you can submit for coverage through that States assigned risk or State pool coverage. Because WC coverage is mandatory in each State, all States have a “pool” or State involuntary WC Insurance placement program. So 3.A, statutory, state specific, coverage in other States is always available. It may be tricky or annoying to deal with some of these State run Pools (always be nice and use your manners) but coverage is available. Because coverage is always available we can never use as an excuse, “We didn’t have the ability to provide coverage.” All State pools have a web page. It’s really not that hard to find them and follow the instructions on how to apply for coverage. Some are difficult, but all are possible.

Always discover the States for which your employer/Named Insured needs coverage. Always know the State’s limitations of your Worker’s Compensation Insurance carriers. Always provide 3.A statutory coverage for all States your client/employer/Named Insured conducts business based on the rule, the State the injury occurred (where the work is occurring) and the state the employee was hired. Be broad.

Things to notice for when selecting the proper class code
WC class Codes will sometimes include drivers and sometimes not. When we find a code which is all inclusive, then we don’t have to separate payroll between employees. When drivers are not noted as included, we will have to add a drivers or truckers code for those employees which are primarily or whose sole work duties are as drivers.

NOC, not otherwise classified codes exist for both WC and GL classification code Guides. Typically the NOC follows a class code description that has other specific possibilities. Before we use an NOC code, we should rule out all the other specific codes. For Example, before we use the Carpentry NOC code, we need to make sure our employer doesn’t fit in the Carpentry interior trim code, or the Carpentry shop only code, or the Carpentry residential dwellings not over 3 stories in height code, or the Carpentry residential over three stories in height or commercial construction code. NOC codes often carry a higher rate than the specific class code, but not always. We don’t classify by rate, we classify by operations. My point is being lazy has many penalties. Using a wrong and also too high rate will ensure you don’t write the customers’ business. Likewise, using the wrong too low rate may mean you don’t keep the customers’ business after the Audit exposes the truth along with an additional premium invoice.

Related codes are often noted in the classification manual. A Related code will have a separate class code. The manual is offering a clue here. Always go and read the related codes if shown under a class code you think is relevant to your employer/Named Insured. You may find we need to add another class code to the policy or perhaps a different code better explains the client’s employee’s work.

Reading Classification manuals is like reading an Insurance policy. Until you read it all you don’t know what any of it means. It’s like a detective novel full of twists and turns and with a surprise ending.

When classifying a client, never go it alone. Trying to classify a client correctly is not a matter of experience and knowledge as much as it’s a matter of gathering information and collaboration. Even the most experienced Agent has to ask the client for help. The best experienced Agents often ask the Underwriter’s opinion and clarification. The task is to get the classification correct. To get the classification correct, we must invite the knowledge of others. Who knows better what work is performed by the employees than the business owner? Who knows more about how Audit will assign a class code than your Underwriter? Not asking for help for other is the mistake of the inexperienced Agent.

Asking for help from others is my secret weapon. Still after 32 years at this writing, I ask for help. This is one of the most common mistakes I see in new or younger Agents making, they seem to think they have to figure it all out on their own. That somehow asking for help or advice makes them look incompetent. The Fact is, it’s just the opposite. Insurance requires an extremely wide breadth of information. It’s next to impossible for any one person to have a complete and full understanding. It is the fool that thinks they know it all. Completing an application and producing a correct policy is a team sport. The Agent, Underwriter, Loss control Specialist, Servicing Agents/Account managers and of course the Named Insured all must collaborate, cooperate, and provide valuable information to produce an Insurance policy that works. Those who go it alone make mistakes, often bad mistakes, unforced errors that didn’t have to happen. Asking for Help and seeking understanding is the mark of a Genius, for a true Genius is one that never stops learning. A Genius doesn’t steer the truth, they find it. The Insurance Detective always seeks the truth, the correct facts and they, with the help of others, create solution. Those that try to go it alone just end up lonely.

Loss runs must be included with the application.
No application is complete without 3 to 5 years claims history/loss runs. You will not and should not get a quote without them.

Safety Training and Supervision, what the loss runs tell us
The claims history we obtain form our client Named Insured/employer may very well show no claims for the past three or five years (best). Is that just luck, or do they have a secret? The secret is safety policies and employees training. As part of your Worker’s Compensation application, you should always provide both prior years’ Loss runs and claims history 3 to 5 years prior policy terms depending on Insurance carrier and a copy of the employers/ Named Insured’s safety policies/handbook. The more details about the employer’s safety programs the better. Regardless of the information on the loss history reports, safety information is a must.

What if the employer/Named Insured has reported claims? Then we must know what happened. Many times, Agents just get the loss information and send it on the Underwriter. If there are no claims, then fine, that’s what should be done. However, if there is a claim, then before we forward the information to the Underwriter, we need to ask questions. We need to be able to advise the Underwriter if these claims shown are what the Insurance carrier can expect if they write this account or if in fact, measures are in place to prevent such an occurrence from happening again. We need to explain the why. If the EMR was all we needed to know, gave a whole and complete accounting of the subject employer/Named Insured, then, we wouldn’t ask for loss history, we wouldn’t need information about safety programs, and we would never need to send loss control professionals to plants or worksites to inspect for hazards. In practice, we don’t write Worker’s Compensation policies without a broad understanding of the client’s exposures. What has happened and what is happening now can help us determine what we can expect to happen.

What we can learn from loss runs
The first thing we can learn is if a safety plan exists or if it’s being followed. Employer/Named Insureds that closely follow their safety programs have few claims. Employer who place a premium on safety, by deed, not just word, have few claims. Often loss runs will give us enough detail about the accidents and injuries for us to determine just how good a safety program is and even perhaps where the weak link in a good program exists. For Example, if we find several eye injuries, we can ask the employer what eye protection is provided employees. If none, then the need is obvious. If eye protection is abundant and required, then a different set of issues possibly exists. Either the eye protection is inadequate or the use of the eye protection is not being enforced by supervisors. Asking questions is the key. And it’s just this simple. The employer can lead you to the cause as you lead them with the problem. When examining the claims history, look for common elements, types of causes, types of injuries, days injuries occur, repeat claimants (same employee injured more than once), and perhaps injury locations. Focus in on possible trends and seek solutions.