KEEP YOUR CLIENTS OUT OF HARM’S WAY
by Curt Pearsall
Lessons from natural disasters can help you protect your clients -- and minimize your E&O exposure.
Although your clients might not have suffered from a natural catastrophe, that doesn’t mean you can rest easy. This article addresses two specific issues that might indirectly affect more of your clients than you realize.
ADEQUATE REPLACEMENT COVERAGE
If your clients’ homes or business properties were destroyed tomorrow, would they have adequate replacement coverage? The cost of materials has escalated significantly over the past few years. Lack of availability for items such as copper, plywood, steel, studs, and rebar have greatly increased residential and non-residential building costs.
According to a recent report from Marshall & Swift/Boeckh, up to 65% of the homes in the U.S. are underinsured by an average of 27%. It certainly appears that Property coverage has failed to keep pace with the inflation of building materials.
Unless you’re increasing your clients’ coverage accordingly, they might face exorbitant bills if their home or other property is destroyed. As their agent, you might be liable for failing to ensure that they had adequate coverage.
Most carriers offer their agents online Insurance to Value (ITV) estimators that can give you and your clients peace of mind. Contact your policyholders today and update their coverage.
‘OTHER STATES’ CLAUSE
This issue involves Commercial Lines clients whose employees travel to another state for work. Coverage for this is indicated in the Other States Insurance clause of the Workers Compensation policy. Here’s how most policies read:
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The other state’s insurance applies only if one or more states are shown in Item 3C of the Information Page.
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If the insured begins work in any one of those states after the effective date of this policy and are not insured or self-insured for such work, all provisions of the policy will apply as though that state were listed in Item 3A of the Information Page.
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The carrier will reimburse the insured for the benefits required by the Workers Compensation law of that state if it’s not permitted to pay the benefits directly to persons entitled to them.
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If the insured has work on the effective date of the policy in any state not listed in Item 3A of the Information Page, coverage won’t be available in that state unless the company is notified within 40 days.
The key issue is number four. Let’s say that you insure a contractor who has gone to a storm-ravaged state for work. Their policy will cover the employees, provided that they began working in those states after the Workers Compensation policy went into effect if the state was not indicated on the policy. Now the policy comes up for renewal and the employees are still working in those states. Unless the policy is endorsed within the proper time period, your contractor might not have Workers Compensation insurance for its employees — a significant gap in coverage.
How would you know if you have an account with this potential exposure? Depending on the size and structure of your agency, I’d recommend contacting these types of clients personally. If this isn’t feasible, contact them in writing at least 30 days before their effective date, preferably by certified mail. For new business customers, it’s important to have a dialogue with the owner to identify those states where they have employees or expect to be working.
So, even if you live in an area that hasn’t been directly affected by a natural disaster, there’s a good chance that more of your customers than you realize are indirectly affected. Update your Personal Lines and Commercial Property clients about their ITV and take the necessary steps to see if any of your Commercial accounts are affected by the Other States clause in their Workers Compensation policy.
Curtis M. Pearsall is vice president and director of Errors & Omissions for the Utica Mutual Insurance Company. He oversees the underwriting, marketing, services, and claims divisions of the Utica E&O program. He can be reached at (800) 274-1914, ext. 2543 or [email protected]. Reproduced, with permission, from The Agency Automation Report.