E&O Loss Control
Stand-Alone Policy Or Endorsement?
By Curtis M. Pearsall, CPIA, CPCU, AIAF
As Spring hopefully approaches (even in Utica), many of your customers are going to be stopping in to have you insure their toys, whether new or old. Whether that toy is an ATV, boat or a camper, insurance is needed for both liability and physical damage.
Question for the agency personnel - when one of your customers stops in for insurance, are you going to add the exposure to the auto or homeowners policy (based on the exposure) or are you going to recommend a separate policy? In probably all circumstances, there is a premium differential and in some cases the difference may be substantial. The fact that there is a premium difference should imply that there is probably (yes there is) a significant difference in the coverage being afforded based on which approach you pursue. Thus, let's take a minute and look at some of the differences. The differences may vary based on the carrier used so a comparison involving your markets is needed.
Take an ATV exposure. These would either be covered by a separate policy or by the homeowners policy. In virtually all of the areas, liability or physical damage, a separate policy is broader. In the case of liability, you can buy what limit you want on a separate policy however when the ATV is insured on the homeowners policy, the homeowners limit will apply. Also, the scope of coverage is broader as the separate policy covers for recreational use on or away from the insured's residence while the endorsement in many cases only covers losses if the ATV is used solely to service the insured's residence. Injuries do occur on ATV's so the issue of Med Pay needs to be factored in. On a separate policy, limits are available, normally up to $10,000 while on the homeowners policy, it is the limit on the homeowners policy and once again, only at the insured's residence. Uninsured/Underinsured Motorist coverage is available on a separate policy; it is not part of a homeowners form. Coverage for customization of the ATV is also broader on a separate policy.
Now that we have covered a common land exposure, let's turn to the water. Is there a big difference between a separate policy and an endorsement to the homeowners policy? Homeowners policies have limitations on size and horsepower (normally 26' in length and 25 horsepower). Stand alone policies are written based on the actual exposure so a watercraft 50' in length with a 500 horsepower single engine, valued at $250,000, is definitely more appropriately insured on a separate policy. Med Pay is afforded on a separate policy while most homeowners do not cover Med Pay. Separate policies offer more options for the valuation for physical damage (homeowners policies are usually only available on an ACV basis). Also, separate coverages such as fuel spill liability, wreckage removal, roadside assistance, and on water towing are not part of too many, if any at all, homeowners policies. So with watercraft, as with the ATV, while separate policies carry a higher premium, the coverage is much, much broader.
From an E&O perspective, do I suggest that the separate policy? Definitely! For the 16 years that I have been involved in the E&O program, the # 1 cause of claims is Failure to provide the proper coverage. So what would happen if you insured a boat for one of your customers on a homeowners policy and they had a fuel spill loss? When the homeowners carrier denies the claim, there is the potential that your customer would bring some type of action against your agency for Failure to provide the proper coverage.
Having said that, I will also tell you that if you advise your customer of the significant differences between a separate policy and an endorsement and they select the endorsement, that may be okay on one condition. That not only did you document that you explained the differences but you also get them to sign a statement for your file that the differences were explained. If you don't do that, you have a potential E&O nightmare on your hands.
The summer is a season to he enjoyed. Let's make it enjoyable by doing the right thing for your customers and your agency.