Insurance Risk Management: The Framework – The Insurance Policy: Part Two

Insurance policies contain exclusionary endorsements or loss-limiting endorsements.

• Most of the time exclusionary endorsements are clear to all parties prior to binding the policy.
• Other times they are obscure, buried in highly-confusing policy language, not known or fully understood at the C-Level until a loss occurs.

In either case: In the event of a loss, what’s in the contract is what the insurance company will go by. That’s why it is so important to have your policy reviewed and analyzed to make sure that it will do what you believe it’s intended to do.

Case in point:  A prominent real estate firm engaged us to review a property policy for a just-purchased building in Philadelphia. The $30,000,000 building was currently vacant and being renovated. To cover the building their broker sold them a new, separate policy.

Unlike previous policies that had been arranged for the real estate firm, this new policy contained a “protective safeguards” warranty, which required the client to have 24-hour security on the vacant premises and a fence surrounding the property. Lacking that, in the event of a loss there would be no coverage. Until we alerted them, the insured had no knowledge that the policy contained such a warranty.

Had a loss occurred with the above referenced provision in place, the insurance company could decline coverage based on this point and the claim would have been litigated. Not the kind of scenario you want to have happen. It would have been costly and time consuming for the insured to resolve the issue.

In the final article in this series, we’ll look at another important point you’ll want to remember.