The Difference in Conditions Insurance Coverage

One of the coverages that has traditionally remained in the excess and surplus lines market is Difference In Condition Insurance Coverage (DIC). This is defined as:

A property policy insuring “all risks” of physical loss or damage, excluding fire and extended coverage perils. Any cause of loss that would result in the property being left in a condition different from what it was prior to the occurrence of the loss event, except for those causes of loss specifically excluded. Such unnamed losses would include collapse, water damage, theft and (optionally) flood and earthquake. Often, this coverage is provided on an inland marine basis.

Or

DIC insurance provides coverage designed to close specific gaps in standard insurance policies and is usually available only for larger industrial or commercial risks. It allows coverage to be customized to extend to such exposures as water damage, flood, collapse, earthquake, landslide, etc., according to the insured’s needs. DIC coverage may be provided by means of a separate insurance policy or it may be added by endorsement to the basic policy.

ISO even came out with a form for this coverage in their inland marine coverage area and defines it as follows:
The Insurance Services Office (ISO) Difference In Conditions Coverage Form provides broader insurance coverages for insured property than the insurance provided by many conventional property coverage forms. While it does not provide excess limits for existing property coverages, it does provide coverages not found in the underlying coverage forms or policies. Its name arises from the different coverage provisions that exist between it and the underlying coverages. The more differences there are in coverage between the underlying coverage and the Difference in Conditions (DIC) form, the more coverage the DIC provides. This form supplements the underlying coverage forms by providing at least some additional coverage, such as Earthquake and Water Damage, including Flood. The DIC limits are usually equal to or less than the underlying limits because the underwriting intent is for the DIC to be a companion policy to the conventional property policy covering on the same property. However, is possible for a DIC to provide excess coverage for a cause of loss covered by the underlying or companion policy. The form provides coverage for risks of direct physical loss or damage, except as limited or excluded, including Earthquake and Water Damage, on covered property at described locations, at unnamed locations and while in transit.

Difference In Conditions coverage is not a controlled line of insurance and no standard form is available for use. In the past, each insurance company designed its own coverage form or policy and provided its own unique coverages and other features. However, ISO has a reputation for developing excellent inland marine coverage forms used in whole or in part by its members and subscribers. ISO’s coverage forms are used here as the model to analyze, evaluate and explain the Difference In Conditions Declarations and Coverage Forms.

With these multiple definitions what does an agent need to know about DIC Coverage?
1. Agents need to assess what the insured’s property exposures are and determine what coverage and limits their clients need. DIC coverage allows and agent to “fill gaps” in their clients program and not just settle for the coverage and limits provided by their carrier.
2. DIC Coverage can be used when a carrier sub-limits a specific peril due to comfort level with that exposure or reinsurance restrictions. A DIC policy can provide those excess limits that the insured needs to complete their insurance program at the limits they want. A good example of this is when using a DIC policy to provide excess flood limits over a NFIP flood policy. Also can be used when a carrier puts a theft sub-limit on an underlying policy and the insured wants higher limits.
3. Some agents will call DIC Coverage a “Property Umbrella” policy. This is because they may be using this “property umbrella” to eliminate coverage gaps or drop down when limits do not reach the levels needed to satisfy a client.
4. Although ISO came out with a coverage form for DIC, most carriers use their own form so there is little standardization with this coverage. A full analysis of the form needs to be done and not just the specific perils that are being covered.
5. Perils that can be covered? Just about anything but most commonly flood, earthquake, collapse, fungi, wet and dry rot, theft, unusual transit exposures, international exposures and unique burglary exposures.
6. Agents must review exclusions and policy conditions that might be different between a DIC policy and the insured’s standard fire policy.
7. Policy structure can be done one of three ways
– An “all risk” primary coverage form that excludes perils that are being provided by a standard policy
– A specified peril primary coverage form with only the perils that are to be covered on the DIC form listed
– An excess property form with underlying policies scheduled and standard property causes of loss excluded
8. DIC policies do not normally include coinsurance provisions.
9. It is important to review the definition of each peril since they can vary widely in DIC policies.
10. DIC policies usually have higher deductibles so those deductibles need to be reviewed closely with the insured to make sure they have a comfort level.

The final consideration in handling DIC insurance coverage for your clients is that you need to work with a carrier or a broker who will listen and help you tailor the coverage to your clients needs. Use a detailed application, provide loss runs and give a detailed narrative of what you are looking to do. Leave some lead time so you can negotiate with the underwriter to provide the most favorable program for your insured.

This is your time to be creative with your clients insurance program and help provide coverage that fits their needs. Your innovation and attention to detail in providing DIC will help to impress your client and will show them that you will not settle for “off the rack” coverage when a more tailored program is needed. Since very few agents propose DIC coverage to their clients, it will help you stand out and will show your expertise and professionalism.

If you have any questions, please contact me at: Ken Kukral 1-800-937-3497 ext 2079 kennethkukral@intlxs.com

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