XYZ Company
Insurance Policy Assessment
Assessment Conducted by:
Student A
Student B
Student C
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This report of our findings in exploring XYZ’s exposures to financial loss and
current methods of managing them is based on our interviews with your employees, our
reviews of your contracts and advertisements, and our analysis of your present insurance
program. It is based on the documents and policies we were given. If any endorsements,
contracts, or additional policies exist, we are unaware of them and, of course, they are not
addressed in this report. Some of our observations are little more than that. For example,
when we suggest reviewing limits on policies or coverages we are not saying they are
presently inadequate, simply that they warrant review. We are not qualified property
appraisers. Therefore, our judgment that the current limits on the buildings and business
personal property are probably inadequate is a layperson, not a professional, assessment.
Likewise, when we point out that the words in the policies sometimes appear to
create a potential gap in coverage, we are speaking as laypersons, not attorneys. We did
not research legal precedent or prior court rulings on any of the wordings we analyze
here. On the other hand, words have meanings and the policies are legal contracts. We
consider it important that the words, commonly understood unless defined in the policy
itself, reflect the intentions of the underwriter and you the client. Misunderstandings or
misconceptions need to be dealt with before a loss occurs, not in court afterwards.
This report does not in any way reflect on the competence or service of your
insurance agent. It must be remembered that there are limited underwriting markets
available for nonprofit organizations, plus the relatively small premiums your policies
generate do not give your agent much negotiating strength with insurers. Some of our
recommendations may be impossible to implement because no underwriter is willing to
make the changes or provide the coverages. If nothing else, though, you will at least be
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aware of the issues presented and may choose to take other action to deal with the
coverage issues raised.
Declarations
The declarations have some inconsistencies, the first of which was in the naming
of the insured throughout the policies. Insurance policies are legal contracts; therefore, it
is critical that the parties are correctly identified. That is, the named insured on each
policy should read, “XYZ”.
There is also a disparity between the forms listed on the declarations pages of the
policies and the forms actually in the policies. The Policy Declarations state important
facts about the insurance contract: who is insured by what insurance company, for what
period of time, where in the world, a number of others, including what endorsements
apply to the policy. The forms listed on the Declarations and the forms actually included
in the policy need to match exactly. A number of forms are in the policies, but not on the
declarations pages: CP 7901 (10 00), CP 7901 (10 00), CG 7901 (09 00), CG 7060 (07
86), CR 7910 (05 00), CG 7902 (09 00), CP 7902 (09 00), and CI 7901 (07 86).
Additionally, three forms are listed on declarations pages, but not included in the policies
themselves: CG 7920 (03 98), IL 0935 (07 02), CG 2162 (09 98). These discrepancies
may be little more than clerical errors, but one cannot know how significant they are
without determining which endorsements actually apply.
Conditions
The required notice of cancellation by the insurer is 60 days. Since XYZ is such a
unique organization and few insurers write this kind of account, this notification period
may be too short. We would recommend inquiring about increasing the length of this
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period to 90 or even 120 days, to provide more time to replace the coverage, in the event
it is ever needed. If you were canceled or non-renewed, it would be a black mark on your
record and would make it even more difficult to find a replacement carrier. The more
days your agent has to accomplish it, the better.
Comprehensive Property and Liability Policy
The limit for the office business personal property in Bloomington is currently
$80,000, and the policy includes a coinsurance clause. If subjected to coinsurance, it is
very important that the facility be insured for the required amount. For example, suppose
the actual value of the contents is $120,000. The coinsurance requirement is 90 percent.
Under coinsurance, you must have insured at least 90 percent of the $120,000
replacement value at the time of loss, or $108,000, to avoid a coinsurance penalty. In the
event of a total loss, the insurer would pay the policy limit of $80,000, but most losses are
partial losses. In this case, let’s say the loss is $50,000, the insurer would pay 74% of the
loss, which is calculated by dividing the actual coverage purchased ($80,000) by the
minimum amount required ($108,000). Thus XYZ would recover only $37,037 and
suffer a $13,000 uninsured loss. This example illustrates how important it is to insure a
building for the correct value when there is a coinsurance clause. Along these same lines,
it is important to consider the limits on the other XYZ Properties. The Pontiac office
policy limit is $20,000, and the Pontiac storage facility limit is $10,000. Since the policy
has a coinsurance clause, it is important to evaluate each of these limits carefully. The
best way to eliminate this potential uninsured loss is by eliminating the coinsurance
clause and adding an agreed amount endorsement.
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The deductible on the policy is $250. It is unlikely that XYZ would report a small
loss. Thus, you might consider raising the deductible to $500 or $1,000 and enjoy
premium savings.
In section A. 2. e. Contraband is excluded, which is defined as stolen goods in
transit. This means that if property was stolen and the thief has an accident while fleeing,
the property destroyed in the crash would not be covered. This exclusion needs to be
deleted or changed to show that it is only intended for a situation in which XYZ does the
stealing.
The Utility Services Direct Damage endorsement on the comprehensive policy
(CP 04 17 (04 02)) excludes electronic data. This endorsement covers direct damage to
utility services away from premises only. With electronic data excluded, it is unclear
what the endorsement is intended to cover.
The commercial general liability limits coverage to designated premises, under
Project Endorsement CG 2144 (07 98). This endorsement changes the Comprehensive
General Liability into an Owner’s, Landlord’s, and Tenants policy, which is rarely seen
today. An OLT limits coverage to what occurs on the premises and to what happens off
premise that directly connects to the premises operations. We recommend removing this
endorsement.
Crime Policy
Under the Commercial Crime policy, only money and securities inside and out are
covered, with a limit of $20,000. We recommend making sure this limit is adequate.
There is also an expired Employee Dishonesty policy but without the required ERISA
endorsement. Both of these are required by Federal law for any entity with a pension or
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profit sharing plan. [This goes in the Property section of the report Section A. 4. b.
preservation of property conflicts with special cause of loss form. You are required to
protect your property from further loss when a loss occurs. Thus, the basic property form
says it will cover such property wherever it is for any cause of loss whatever. But then
the Special Cause of Loss form excludes property in the open from loss caused by rain,
sleet ice or snow. One form includes removed personal property and one takes away the
coverage. Both forms should be consistent, preferably deleting the exclusion of property
in open. In your Special Cause of Loss form (on page 4) you have no coverage for
“faulty, inadequate or defective…maintenance”. Since you are in an office complex and
you can’t control the maintenance of the whole building, XYZ should be covered for
damages resulting from faulty maintenance by other tenants.
Business Income
From what policies that we were given we did not find a business income
coverage. The organization has ongoing expenses such as bills and salaries. Business
income insurance would help keep the organization going after a loss.
General Liability
The policies exclude all fellow employees and volunteers for injury or damage to
fellow employees or volunteers. There is a standard endorsement that would add this
coverage for no charge. There are no medical payments for volunteers. Since volunteers
would not be covered under your Workers Compensation policy, you should see if this
exclusion could be deleted for Medical Payments.
Professional liability coverage is excluded in the general liability policy.
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The policy includes as insureds employees and volunteers. In general this is a
good thing. However, when coverage is restricted because of the acts of an “insured,”
XYZ could be uninsured for problems caused by employees or volunteers. For example,
under the personal and advertising injury liability policy, the personal injury excludes
known violations of “an” insured.” Instead of “an” it should be “the named insured”.
Under the non-owned and hired auto liability the employees are not covered as insured’s
if they are using their own vehicles.
The fire legal limit for the Bloomington office is currently $100,000. The policy
limit needs to be high enough to cover the part of the building XYZ occupies. It is
important to ensure that this is an adequate limit. XYZ may wish to check this value with
the landlord or attempt to value the property on their own.
Directors and Officers
The Directors and Officers Liability Policy does not include fiduciary liability
coverage. Fiduciary liability coverage provides coverage for alleged wrongful acts by the
trustees or managers.
Special Event Policy
Legal liability for athletic or sports participants on the rented property is excluded
as well as assault and battery. We recommend that participants be included under legal
liability, since these are the groups that need to be insured for special events (e.g. wheela-thon). If many participants get injured during an event with a $250 deductible per
claim it would become very expensive. Change the $250 deductible per claim, to a per
occurrence amount, so that it is a set aggregate amount instead of a separate deductible
for each person. This policy also excludes volunteers, who play a major role in running
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special events. There is no umbrella or excess liability policy, so it is important to ensure
that your policy limits are adequate.
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