Coverage Creativity

This morning, I wrote an article for the CPCU CLEW (Coverage, Litigators, Educators & Witnesses) Interest Group called “On Becoming an Insurance Coverage Nerd.” This afternoon, in this column, I get to demonstrate one of the values of being a coverage nerd aside from just the pure joy of “knowing coverages at a cellular level,” as one attorney described me in a recent review of my “When Words Collide” book.

I enjoy taking a coverage or claim scenario and determining whether a loss that arises from the facts and circumstances of a specific situation would be covered by the insurance policy in question. To me, that’s not work, but more like a challenging game. To you, if a customer’s assets and income are at risk, it’s certainly more than a “game.” But it doesn’t have to be “work” if you’re up to the challenge.

Knowledge and understanding of the coverage options available to you and/or that exist in the marketplace are among your most powerful sales and service tools. For prospects and insureds who care, it gives you a strategic advantage over price peddlers. For prospects and insureds who don’t care, it gives you an opportunity to educate them and increases the likelihood that you will make a sale, retain a customer, and minimize your E&O exposure.

To illustrate, Tim Wahl is an agent in Missouri who is routinely approached by contractors and business owners for insurance quotes that “save me money.”

Invariably, when he demonstrates the holes in their current insurance program and how he can fill them inexpensively, they leave his agency as new customers paying more than they were before, but with substantially better coverage and, perhaps more important, a clearer understanding of why coverage matters. Everyone wins simply by the agent knowing his or her craft. Let’s examine a real-life example.

A business owner insured his company-owned pickup truck on an ISO Business Auto Policy (BAP). He had the opportunity to participate in a competitive road rally and wanted to use this vehicle and its signage to promote his business.

When he approached his agent to make sure his auto insurance covered him, the agent confirmed from the insurer’s claim department that there would be no coverage because of the “racing” exclusion in the BAP, which applied to:

“Covered ‘autos’ while used in any professional or organized racing or demolition contest or stunting activity….”

The insured was incredulous because he envisioned “racing” to mean something like NASCAR or Indy…a speed contest. But a road rally is not a speed competition per se. It’s not about who is the fastest. The winner of a road rally is the driver that completes a prescribed route by arriving at various checkpoints along the way at precise times based on average speeds determined by the organizer that are well within posted speed limits. Safety, not speed, is the prime concern.

If you peruse dictionary definitions of “race,” you’ll find that a race is not necessarily only a “contest of speed.” It can be a “set course or duration of time” or a “contest involving progress towards a goal.” That was how the insurer was interpreting a road rally to be a race. Would the insurer’s interpretation hold up in court following a denied claim? Who knows, but who wants to have a court decide the issue? You know that, if there is a claim, the insurer will likely deny it and litigation may be the only resolution.

So, unless you want to argue with the carrier or move the account, it appears that there is nothing the insured can do. But the agent knew better because he was aware that the “racing” exclusion in ISO’s Personal Auto Policy (PAP) was less restrictive than their BAP. The ISO PAP excludes:

“Any vehicle, located inside a facility designed for racing, for the purpose of…Competing in…or…Practicing or preparing for…any prearranged or organized racing or speed contest.”

The key wording here is “located inside a facility designed for racing.” The ISO BAP has no such restriction in its “racing” exclusion, so the ISO PAP would provide coverage for the use of a covered vehicle in a road rally where the ISO BAP arguably would not. The fact that the agent understands that “car insurance” is not a commodity and examined the precise language of each policy has given his customer a coverage option that appears to enable him to participate in the road rally.

However, not so fast (no pun intended).The ISO PAP has other exclusions, the most important one in this case being a lack of coverage for the use of nonowned autos “furnished or available for your regular use.” Fortunately for the insured, though, the agent knew that there was a coverage option for this exclusion in the form of the ISO PP 03 06 – Extended Non-Owned Coverage – Vehicles Furnished Or Available For Regular Use endorsement.

In fact, almost anyone who has regular access to a company car should have this endorsement. When I drove a company car, while my employer had commercial auto coverage, I added the vehicle to my personal auto and umbrella policies at a total cost of $52 for $2.5 million in additional liability coverage. A bargain.

In the case at hand, many agents would have simply given up and advised the customer that they wouldn’t have coverage for this event. The agent in question, though, used his coverage knowledge to find a solution through a different policy the insured already had while, at the same time, significantly increasing his available coverage limit for that vehicle for a minimal increase in premium.

Insurance is not a commodity. Know the insurance contracts you’re selling or servicing. Sell coverage, not price. Be creative. Solve problems.