This is the second of an 8-part series dealing with insurance myths. We all know that insurance is one of the major risk management tools for any sport, fitness, or recreation business. For many of us, however, insurance is just a big mystery which we entrust to others. After this series you will know many pitfalls and minefields to avoid. Thanks goes to Daniel P. Hale for contributing this series to Sportwaiver.com. The first three segments of the series will focus on property insurance.
PROPERTY INSURANCE LOSSES
1. If I have a blanket limit I don’t have to worry about individual limits on my policy.
This is generally not true because the insurance company will require that you sign a statement of values form indicating that the individual values used to determine the blanket limit are correct. If you deliberately underestimate individual values in order to achieve a blanket limit and to reduce your insurance costs, the insurance company can charge you with fraud and this will negate the blanket limit. Furthermore, some property policies may look like they have blanket limits but they actually provide only an increase of, let’s say, 15% over the individual limits indicated on the schedule of values.
2. Computer viruses are covered.
Many insurance policies today are excluding or limiting computer virus coverage.
3. In the event of a power surge destroying my telephone system, I will be covered for the replacement of that system.
This is not necessarily true. Under the replacement cost endorsement, the insurance company will replace the telephone system with like kind and quality; however, that system may not be available. If you cannot replace it with like kind and quality, the insurance company will take depreciation. This could be a small amount of money on an old phone system. Where possible, coverage should be on a functional replacement cost basis which will allow you to replace with something that is different but that performs the same function.
4. Electrical arcing within my electrical panels is covered under the basic property insurance form.
No. In the event you have electrical arcing within electrical panels that requires those panels to be replaced, there is no coverage unless you have equipment breakdown insurance.
5. Fire damage to lawns and shrubs, including damage done by fire-fighting apparatus, is covered.
This is not true. Fire damage to lawns, shrubs, trees and other similar items is very limited under most insurance policies.
6. I need not worry about damage to underground pipes or flues.
Actually, damage to underground pipes and flues by fire and by other hazards can be considerable and is typically not covered.
7. Fences on my property are automatically covered.
This is untrue. You have to specifically add coverage for fences to insurance policies. Also, there is a difference between fences and retaining walls. Even with specific fence coverage, retaining walls are not covered.
8. Communication towers on my premises are automatically covered.
No coverage is typically provided and these need to be added separately to be insured.
9. Signs are covered automatically.
Signs attached to the building are typically covered for $1,000. Unattached signs need to be specifically insured.
10. Spoilage of food in my store or manufacturing plant is always covered.
This is incorrect. Spoilage of food as a result of change in temperature needs to be specifically insured, and even then not every spoilage is covered.
11. If my building was occupied when the policy was written, and is now vacant, I have no coverage limitations.
This is untrue. The standard insurance policy severely limits coverage after 60 days of consecutive vacancy. Vacancy is defined under most policies as more than 30% vacant. If this occurs after 60 days there is no coverage for vandalism, bursting of water pipes, theft and other perils. Even covered perils, such as fire, have a reduced recovery of 15%.
12. Expense to prove my loss is covered.
This is not true. Expense to prove your loss is generally not covered except some insurance companies will provide a small limit where they require you to secure an appraisal to prove your loss.
13. If the city requires upgrades of my building after a loss, that upgrade will be covered because I have replacement cost coverage.
This is untrue. Insurance policies cover the cost to replace the building as it stood before the loss and not as is required after the loss. Increased cost of construction coverage is required.
“This Article was submitted by Daniel P. Hale, J.D., CPCU, CRM, ARM, CIC, AAI, LIC, AIC, AIS, API, AU. Mr. Hale is vice president of Cambridge Property & Casualty and an attorney licensed to practice law in the State of Michigan. He can be contacted at 734-525-2429, [email protected] or via www.cambridge-pc.com“