The Six Figure Exclusion

Coverage DeniedI recently presented our Diagnostic Insurance Coverage Review (Step three of our Unique Risk Strategy) to a prospective client, and something they said is still ringing in my ears.

We found that the current agent had covered the client’s business personal property in their warehouse on their Ocean Cargo policy, which isn’t uncommon.  But what we found is that the wording in the Ocean policy limited warehouse exposures to property “temporarily detained” during the course of shipment.  To the untrained observer this may not seem like a big deal, but to me it indicated that the insured’s permanent goods in storage would not be covered if a claim occurred.  When I tried to emphasize the importance of how this wording would lead to a declination of a claim (by the way, the values in the warehouse exceeded $5M) I was met with a blank stare.  The prospect said to me: “What’s the big deal?”

I reiterated the potential exclusion and how that could cripple any recovery and possibly bankrupt the client, and the response is probably what a lot of business owners think – he said: “my broker said they cover warehoused inventory like this all the time because it’s cheaper than on a property policy and they haven’t had a problem yet!”

Look, I get it.  Clients rely on the representations made by their agents and brokers as the “gospel” of insurance.  Unfortunately, policy wording trumps what any agent says about the coverage, especially at a time of a claim; and the larger the claim, the greater the push back will be on paying that claim if policy wording isn’t perfect.

This is why getting the policy forms and wordings right is so critical for a mid-market commercial account.  One slip up and the owner’s personal net worth is going to take a major ding – maybe even a hit so hard that they can’t recover from it financially.  I have seen too many instances of insurers trying to use every play in the book to wiggle out of paying a claim.  They have teams of lawyers interpreting policy coverage forms so they can keep their money and NOT pay your claim.  This is especially true when claims reach six figures or greater.  In fact, we call it the “six figure exclusion” – when a claim reaches that sort of level, there is always going to be a level of scrutiny to limit payments or outright exclude them.  If you’ve ever had a serious claim you’ve undoubtedly received a “reservation of rights” letter from your insurer which spells out how they have an obligation to investigate a claim and research it before committing to paying it.  If there is weak coverage wording in their favor, they will exploit it so they don’t have to pay.

I am not saying that all insurance companies are “bad” or a pack of thieves.  They have several constituents to be responsible to: their insureds, agents, stockholders, employees, etc.    What I am saying is that you as the buyer are entering into a contract, a legal binding contract, and you’ve got to make sure that your policies are structured properly and don’t contain wording that could give an insurer any wiggle room.  The weak link between getting what you need and what you actually get is the agent or broker.  As the insurance world has become more commoditized, fewer brokers and account managers have the skills to dive deep into policy language and understand the difference between things like permanent storage of goods and temporary detainment.  And it’s not just property or ocean cargo.  It’s all lines of business – General Liability, Workers Comp, Auto, D&O, E&O, and more!

This is why we believe our five step Strategic Risk Process makes a lot of sense for larger firms.  Before we even ask you for your business, we want to make sure that we’ve identified the key risks and issues in your protection program so that it as bullet proof as possible.

Think you may have problems in your protection program?  What a second opinion?  Think you may have outgrown your current broker?  These are all reasons why we are introduced to decision makers seeking better answers or to fix existing problems.  If you’ve got that nagging feeling like something isn’t just right with your current broker relationship, why not contact me for a conversation and see how we can help you drive stronger results.

Thanks!

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