100 Insurance Myths (#8 of 8)

This is the eighth 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 that we entrust to others. After this series, you will know many pitfalls and minefields to avoid. Thanks go to Daniel P. Hale for contributing this series to Sportwaiver.com. Segments 1-3 focused on property insurance, segments 4-5 covered liability insurance, segment 6 addressed workers compensation and automobile insurance and segment 7 touched on seven different insurance issues. This week the final segment concludes with the crucial topic of the insurance carrier and the agent. Let us know if you have found this series helpful.


INSURANCE CARRIERS AND AGENTS

1. It is good to put insurance “out to bid” every year to keep our insurance agent “honest.”

Actually, this could be detrimental to competitive pricing. The first reason for this is that insurance companies will quickly tire of quoting on your account without getting the business.  Second, insurance companies avoid clients known as “shoppers.” Third, judgments regarding insurance programs should not be made solely on the basis of price.  What the client should do is select a competent insurance advisor that will make decisions on placing the insurance with an appropriate insurance company based upon coverages, price, and financial stability.

2. All insurance policies are alike anyway.

This is absolutely untrue. Insurance policies are all different, even on the same risk for the same line of coverage. A property insurance policy with one company could have 10,000 words and with another company 5,000 words.  More or less words may be better depending on the risk and all of the circumstances.  The truth is no two insurance policies are ever alike on a given risk.

3. My agent said it was covered and that’s enough for me.

This also is a fallacy.  As an ordinary rule, insurance agents in Michigan do not represent the insurance companies that they are utilizing. In fact, they represent the insured, and statements made by agents may not bind the insurance company.

4. My insurance company has insured me for a long time and I am sure they will take care of all of my claims.

The general rule is that there is no good will with insurance companies.  The insurance policy is a contract that says what they will insure and what is excluded.  An insurance adjuster that overpays on a claim or pays a claim that is excluded might be liable to his or her employer.  In the case of minor claims, it is true that if it is a questionable claim the insurance company may pay for it rather than face complaints with state insurance departments or lawsuits; however, in the case of a major claim the insurance company will stick to the policy language.

5. A red stamp on an insurance policy is always bad.

This is not necessarily true.  In Michigan, if an insurance carrier is an approved non-admitted surplus lines carrier as opposed to an admitted or licensed insurance carrier, a red stamp must be affixed to the front of the policy indicating that in the event of insolvency the Michigan Insolvency Fund will not apply.

Although this is a true statement, insurance companies that are not admitted or licensed are occasionally more appropriate than insurance companies that are admitted or licensed.  The non-admitted carrier will insure a wider range of risks and sometimes have broader policy forms than admitted carriers.

The non-admitted carrier may be rated as an “A++” carrier by A. M. Best, the nationally recognized rating organization, and the admitted carrier may be rated “C”.  If you have a choice, you would want to have an “A++” non-admitted carrier as opposed to a “C” rated admitted carrier.

Even though the insolvency fund does apply to admitted carriers, the amount of coverage that is available may not protect you in the event of a serious loss.

6. My policy has a cross liability endorsement.  This should not be of concern to me.

This should be of concern.  A cross liability endorsement excludes claims from one entity to another entity on the same policy. The standard general liability form without this endorsement does not have a cross liability endorsement and, in fact, one entity can sue another entity.  Cross liability endorsements should be avoided.  This is important because in the event a third party takes over an entity, such as a bankruptcy trustee, that entity may sue other entities under the policy.

7. Additional insureds required under my general liability and automobile policy are automatic.

No. You must specifically add additional insureds to most policies or negotiate an endorsement that will provide some coverage for automatic additional insureds.

8. An additional insured under a liability policy is just as good as a named insured.

Actually, insureds must be very careful in how their entities are protected under their insurance programs.  A named insured has broader coverage than an additional insured.  On the other hand, an additional insured should not be listed as a named insured unless necessary.  For example, if the owners of a corporation own a building in a partnership or LLC name and lease it back to the corporation, the lessor should be added as a full named insured which provides broader protection.  If, however, you are leasing the building from an unrelated entity, that entity should be added as additional insured so as not to pick up other exposures of that entity.

9. I have no obligation to read my insurance policy.  I assume it is being read by my insurance agent.

This is not a good assumption.  You cannot count on your insurance agent to read policies and in the event your insurance agent does not read the policy and coverage is not what it should be, there would be no coverage.

10. I buy insurance and I do not need a safety plan.

It is critical to avoid losses because you may not have sufficient insurance to cover the losses and if the insurance company continually pays more in claims than it receives in premiums, you may find it difficult to buy insurance at a reasonable cost.  The objective is to minimize your insurance cost by not having any claims, leaving you in a good bargaining position with your present insurance companies or others that may want to write your business.

“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” .

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