Over time you get used to your standard carriers and the endorsements/exclusions they have on their policies. You can explain to your client and coverage gaps and they have a comfort level with the level of protection you are offering them. Familiarity breads comfort.
Flash forward to the account you had to broker out with a specialty market. It becomes even more important to go through the quote, familiarize yourself with the coverage they are offering and then explain to your client the coverage restrictions. You may even want to pull a copy of the exclusion and give a copy to your prospect to read. If there is a “severe” coverage restriction, such as specifically excluding an operation, you may want to have the insured sign the endorsement acknowledging that they read and understand the restriction. This may seem like overkill but at the time of an E&O lawsuit, you will be glad you followed through with it.
So what do I need to lookout for? What are some of the pitfalls?
Some of the more common ones:
1. Classification limitation – Most policies in the E&S market will have this limitation on the policy. What to watch out for here is to make sure you define with your client what type of work they will be doing. Then make sure the policy classifications match the scope of work they will be doing. If they are say, a “handyman”, what classification would the carrier use? Most use carpentry. So if your insured is doing roofing work and have the carpentry classification on the policy and have a loss due to roofing work they were performing, do they have coverage? If you denote what your client does on the application, you may have something to fall back on.
2. Insured versus insured exclusion (cross suits endorsement) – The unendorsed CGL provides coverage for insured versus insured. Most carriers will put this exclusion on to prevent having to pay losses where one owner tries to sue the other owner to collect under the policy. What you have to watch out for is if the insured versus insured exclusion is ALL insured’s under a policy versus any insured. This would prevent coverage when the landlord sued the tenant who provided them an additional insured endorsement. What you want is the exclusion limited to Named insured versus named insured.
3. Independent contractor’s limitation/subcontractors warranty. – Another very common endorsement. This limitation endorsement is to make sure any subcontractors care like limits and it is up to the insured to make sure this happens. You may want to provide your client with a list of insurance requirements they can give any subcontractors to make sure they are carrying the proper amount of coverage. This is one of those endorsements you may want to print out and specifically go over it with your client.
4. Protective Safeguards Endorsement – This is another very common endorsement but often overlooked. This is one of the limitations that you want to print out and go over with your clients. Make sure they know which protective safeguards are on the policy and then make sure they meet the requirements as written in the warranty section of the endorsement. I have had an agent go so far as to print out the endorsement and have the client sign it that they have reviewed the endorsement, the insured understands it and will comply with it, knowing that if they don’t they may not have coverage at the time of loss.
5. Assault & Battery Exclusion – While this has been pretty standard on most bar and tavern policies it is creeping its way on to other accounts. I am not seeing this on many habitational account, lessor’s risk policies and even retail establishments. Also know that A&B exclusion are not all the same. Does it exclude coverage when the insured forcibly removes a customer from their premises and is hurt in the altercation? What about when one customer gets in a fight with another customer? Many carriers will give back a sub-limit for A&B. You need to ask if they are excluding coverage, going “silent” or giving back a sub-limit of coverage.
6. Warranty Applications – Common with professional liability, it is working its way into many other types of accounts. You need to check to see if the application is a warranty application and if so explain to the client that the carrier is basing their willingness to provide coverage based on the statements in the application. If at the time of loss there were “misstatements” in the application, they could deny coverage.
7. Contractual Liability Exclusion – Not as common but starting to show up in more and more policies in the E&S market. Watch out for it and if you see this on one of your quotes, ask to see a copy. Read through it to see what types of contractual liability they are excluding.
8. State exclusions – A weird one but I am starting to see this type of exclusions. I know of one carrier who excludes any work performed in New York. They believe that the liability exposures there are worse than other states and do not want to have to navigate their court system.
While most quotes list out the exclusions and limitation endorsement, some do not. If that is the case, ask for them. Don’t assume they are standard or “harmless”. Ask for copies of any exclusions you want to see the wording and if they pertinent to your insured’s operation make sure you go over them with your client. Don’t rule out the possibility of buying back the exclusion, getting a sublimit for what it is excluding or possibly getting the exclusion clarified via endorsement.
At the time of a claim you don’t want to hear the words “it’s not covered” or worse yet, “I didn’t know that was excluded”. It is all about managing expectations with your client. If you went over the exclusion with them, they are less likely to expect to be covered when they have a loss in an excluded area. In many states there is a reliance that the insured has read and understands their policy so you have some protection but doesn’t mean they can’t still sue you for E&O.