Why Trust When You Should Know?

It is often said that people buy insurance trusting that it will be there when they actually need it, and this is very true. But why trust when you should know?

Also true, but rarely said is the following, “Often, producers sell insurance trusting that it will respond to their clients’ claims but not knowing if it will.” They don’t know because they don’t know what they are selling, especially relative to business income (BI).

The COVID-19 pandemic is going to be a game changer for the insurance industry and our economy. Claims are already being submitted, and I expect the first errors and omissions (E&O) claim has already been filed, most likely having to do with business income insurance. COVID-19 has created an unprecedented situation relative to the economy and insurance world. Claims will likely be litigated for the next decade as attorneys fight and courts decide if insureds and producers understood that their trust was well-placed.

Business income is likely to be the most litigated coverage. Most articles I’ve read advise that no such coverage exists because no physical damage occurred to any of the businesses. Depending on the form, we will learn if virus contamination is physical damage, we will learn if a virus is a pollutant and we’ll learn if physical damage did occur but was excluded because the damage was caused by a virus. We will learn if courts change definitions.

We will also learn whether contingent business income (and many such forms exist) will provide coverage due to civil authority when zero allegations are made that any contamination ever occurred (the virus being physical damage civil authority claim vs. the straight civil authority claim).

What’s Not Covered?

Whether coverage was available for either type of claim, or whether courts and governments will find coverage, is not the only point. Clients need to know what is not covered so they are not guessing at the time of a claim. Clients now, more than ever hopefully, will understand they need technically competent agents and advocates who understand their true coverage needs. They hopefully now better understand they need brokers who can and will advise what coverages they may need, but possibly can’t get.

‘Depending on the form, we will learn if virus contamination is physical damage, we will learn if a virus is a pollutant and we’ll learn if physical damage did occur but was excluded because the damage was caused by a virus.’

I am not saying I know of a specific form that would absolutely guarantee coverage. This situation is too novel, too new. However, rather than just selling the standard BI form, there may have been and may be better contingent BI forms that would at least give your clients a fighting chance. The goal is to insure clients’ needs.

If the agent cannot meet those needs, then the professional agent, the specialist, the risk manager needs to advise the client they cannot offer the necessary coverage. The exception is if you are an order taker. Order taker’s standard of care is so low as to be non-essential to the process. Frankly, order taker agencies’ actions can be automated and will soon be automated so without a future, I don’t see much point in even considering this option.

BI is crucial in situations like this because properly written insurance can be used to avert layoffs. Your agency’s future is dependent on all those small businesses you insure. Did you do your part to protect the economy? If an agency does not take the extra steps required to insure their clients will stay in business when times are tough, regardless if the issue is a fire, a theft, a flood, or a virus, the agency is effectively endangering its own survival.

It may be too late to address COVID-19 claims, but it is not too late to learn business income coverages in depth.

Other Coverages

Workers’ compensation claims will be litigated, too. These cases will be interesting for many reasons. Someone told me, “At least an agent can’t screw up workers’ compensation in this scenario!” That is not true. Failure to provide coverage for the applicable states is potentially going to be a common E&O workers’ compensation claim. If an employee is working in another state or traveling for business and catches the virus in a state that is not covered by the comp policy there just might be a problem.

Event cancellation is going to be an issue, too. This coverage may become quite popular going forward.

Force Majeure is likely going to be one of the most important terms readers will see or learn if they do not already know what it means. (One definition of Force Majeure is: “Unforeseeable circumstances that prevent someone from fulfilling a contract.” Since many insurance policies specifically were changed around 2009 to exclude virus coverage, I’m not sure a pandemic was unforeseeable in the insurance space.)

Force Majeure is extremely important in contracts and insurance policies, especially relative to event cancellation and civil authority business income claims. Understanding how Force Majeure applies and could result in claims being denied requires sharp critical thinking skills.

I hear producers saying, “Well — that is just how it is.” Customers need coverage or protection or risk management regardless of “how you think it just is.” Such a response is indicative of lazy thinking. No one needs an agent who is lazy.

Sometimes, one can create manuscript endorsements to solve problems like Force Majeure. Sometimes, agents can find alternative policies. If customers are educated by their agent regarding the importance and given examples of how the Force Majeure clause in contracts they’ve signed, along with their insurance policy Force Majeure clauses, can be managed through contractual revisions and specific behaviors, they will more likely adopt these risk management behaviors. Solutions, even partial solutions, are far superior to saying, “Well — that is just how it is.”

Guesswork in insurance is never good. Guesswork is also not worthy of commissions. Why on earth should anyone pay a dime to an agent who is hoping coverage exists? Gray areas exist, but little of what comes to my attention is in that gray area. Producers and account managers simply don’t know their coverages. Guessing is not worth a dime to carriers or consumers.

Both the Insurance Journal’s Insurance Academy and Burand Insurance Education offer excellent coverage courses.