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Category Archives: Insurance Tip of the Week

Ethics in the Workplace – Six (6) Points To Consider

1) Define your values – remember this is what you are willing to enforce and live to…so make certain that you

Pavilion Office Building

can and will do just that.

2) If you post it, you MUST practice it – walk the talk and talk the walk

3) Integrate it into your workplace – measure it and incorporate it into your everyday processes

4) Watch for the “slippery slope” – make certain that there is a “line in the sand” aver which NO ONE can step…once beyond that line things tend to get a bit slippery

5) Be above reproach – Stay WAY above your line in the sand. It makes it easier to live with that line every day.

6) Get past your self-protective behavior – you are going to make mistakes. When you do own up to them promptly, it is far better for you, your organization and all of those folks you work with on a regular basis.

Written By:

Casey Roberts, ACSR, AFIS, CIC
Laurus Insurance Consulting
www.laurusinsuranceconsulting.com 

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New Commercial Property Forms Update Eff Date 4-1-2013

New Commercial Property Forms Update

 Proposed Effective Date 4/1/13

Materials are copy written by ©Insurance Services Office, Inc., 2011

The ISO has submitted significant changes for the Commercial Property Forms that have an effective date of 10/2012. While the forms carry a 10/12 date the proposed effective date on the April 1, 20l3 is proposed by ISO in all jurisdictions where the ISO establishes dates.  This date places more importance on these significant changes as the companies begin to actually adopt the language.

This is the biggest change in forms that we have seen for many years.  The majority of the key forms are taking on some sort of change.  Some of the changes are minor but carry new edition dates of existing form numbers; forms that are being withdrawn and new forms that are being introduced. The information, upon which this article relies, is the ISO Circular dated January 3, 2012 and review of the forms within the 10/12 series.   This multi-state revision will be applicable to the following jurisdictions:

Alabama Kentucky Ohio
Alaska Maine Oklahoma
Arizona Maryland Oregon
Arkansas Massachusetts Pennsylvania
California Michigan Rhode Island
Colorado Minnesota South Carolina
Connecticut Missouri South Dakota
Delaware Montana Tennessee
District of Columbia Nebraska Texas
Florida Nevada Utah
Georgia New Hampshire Vermont
Guam New Jersey Virgin Islands
Illinois New Mexico Virginia
Indiana New York West Virginia
Iowa North Carolina Wisconsin
Kansas North Dakota Wyoming

Many of the ISO changes have already been adopted in insurance company forms while other changes represent clarification of the “intent” of the form.  We will include a listing of the forms that will be part of the 10/2012 edition date. Specifically we will highlight those changes that have any significant impact and new endorsements to the form series. This chart is a summary of the form changes and each form must be reviewed in its entirety to understand the impact of the changes. As you review the impact of the form changes you will note that there are many instances where there is no change in coverage.  What this means, typically, is that the language of the form has been modified by adding or removing a word or substituting a word that is clearer.  There is no change in the intent of the form.  Some changes result in a coverage increase typically in a sub-limit that is provided.  Some changes result in coverage being reduced for example removing am extension or sub-limit that appeared in a prior edition date.  Some changes will show coverage is broadened which typically means that form language has been added to make the coverage more comprehensive. There are some new endorsements that are being introduced that we will discuss in more detail as they are new to the form series.

COMMERCIAL PROPERTY FORMS COVERAGE FORMS AND CAUSES OF LOSS

CP 00 10 Building and Personal Property CP 00 50 Extra Expense Coverage
CP 00 17 Condominium Association Coverage CP 00 70 Mortgage holders Errors and Omissions
CP 00 18 Condominium Unity Owners CP 00 80 Tobacco Sales Warehouses Coverage
CP 00 20 Builders Risk CP 00 99 Standard Property Policy
CP 00 30 Business Income and Extra Expense CP 1010 Causes of Loss—Basic Form
CP 00 32 Business Income Without Extra Expense CP 10 20 Causes of Loss—Broad Form
CP 00 40 Legal Liability Coverage Form CP 10 30 Causes of Loss—Special Form

ENDORSEMENTS

CPDS 65 Flood Coverage Schedule CP 10 47 Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment
CP 03 21 Windstorm or Hail Percentage Deductible CP 10 66 Flood Coverage Endorsement
CP 03 29 Deductibles by Location CP 11 21 Builders Risk-Theft of Building Materials, Fixtures, Machinery, Equipment
CP 04 02 Increased Cost of Loss and Related Expenses for Green Upgrades CP 12 18 Loss Payable Changes
CP 04 04 Specified Business Personal Property Temporarily Away from Premises CP 14 30 Outdoor Trees , Shrubs and Plants
CP 04 05 Ordinance or Law CP 14 70 Building Glass Tenant’s Policy
C CP 04 08 Higher Limits CP 1501 Business Income From Dependent Properties Limited International Coverage
CP 04 09 Increase in Rebuilding Expenses Following Disaster (Additional Expense Coverage on Annual Aggregate Basis) CP 15 02 Extra Expense From Dependent Properties Limited International Coverage
CP 04 11 Protective Safeguards CP 15 15 Food Contamination Business Interruption and Extra Expense
CP 04 15 Debris Removal Additional Expense CP 15 08 Business Income From Dependent Properties Broad Form
CP 04 17 Utility Services Direct Damage CP 15 09 Business Income from Dependent Properties Limited Form
CP 04 18 Condominium Commercial Unit Owners Optional Coverages CP 15 10 Payroll Limitation or Exclusion
CP 04 38 Functional Building Valuation CP 15 15 Business Income Report/Worksheet
CP 04 60 Vacancy Changes CP 15 25 Business Income Changes Educational Institutions
CP 10 32 Water Exclusion Endorsement CP 15 21 Ordinance or Law Increased Period of Restoration
CP 10 33 Theft Exclusion CP 15 34 Extra Expense from Dependent Properties
CP 10 34 Exclusion of Loss Due to By Products of Production or Processing Operations (Rental Properties) CP 15 45 Utility Services Time Element
CP 10 36 Limitations on Coverage for Roof Surfacing CP 15 50 Radio or Television Antennas—Business Income or Extra Expense
CP 10 38 Discharge from Sewer, Drain or Sump (Not Flood-Related) CP l7 98 Condominium Commercial Unit Owners Changes Standard Property Policy
CP 10 40 Earthquake and Volcanic Eruption CP 17 99 Condominium Association Changes Standard Property Policy
CP 10 44 Theft of Building Materials and Supplies (Other than Builders Risk) IL 04 15 Protective Safeguards
CP 10 45 Earthquake and Volcanic Eruption Sub Limit Form  
CP 10 46 Equipment Breakdown Cause of Loss  

 

Highlights on some NEW ENDORSEMENTS:

Exclusion of Loss Due to By Products of Production or Processing Operations (Rental Properties) CP 10 34

This endorsement is as a result of the landlord/tenant business risks relating to the rental of the property.  While the landlord may enter into a lease that holds the tenant responsible for damages arising from a variety of causes, the insurance contract is not intended to compensate a landlord for the expected consequences of usage of the rental premises as intended. One example provided by the ISO in explanation would be when a premise is leased for use as a restaurant and there is damage from the residue of the cooking operation.  This is deemed a business risk innate to the occupancy not loss compensated by insurance.  This question becomes much more interesting and complex when the property is rented for illegal purposes such as the rental of premises that is used as a methamphetamine laboratory in which the damage from methamphetamine “cooking” operations can be likened to the residue from cooing operations in a restaurant.  Needless to say there are many issues at the heart of this discussion that goes beyond the coverage issue such as:  did the landlord know about the operation; should the landlord have known about the operation and so on.

A case in point that the ISO used in their circular was the Graff v. Allstate Insurance Company, 113 Wash, App.799; 54P.3d 1266 (Wash, Ct. App.2001).  In the case the insured filed a claim for cleanup expenses after a tenant’s methamphetamine laboratory damaged his rental house and the insurer denied the claim citing the policy’s contamination exclusion.  The insured sued and the trial court held in favor of the insured finding that his insurance policy covered the cleanup expenses.  The appellate court affirmed the lower court’s decision and stated that the operation of a methamphetamine laboratory is vandalism and therefore covered under the policy. Thus both the contamination and vandalism issues came into play.  The Insurance company,  (plaintiff),  contended that coverage is not intended to extend to the inevitable effect of a production operation which is emphasized in the language of the Special Form.  As a result of this case and similar claims, the ISO has introduced this endorsement to be attached to all polices issued to owners and tenants of rental property.

Equipment Breakdown Cause of Loss CP 10 46

Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment CP 1047

The ISO is introducing a new Cause of Loss form for Equipment Breakdown that is compatible with the Special Cause of Loss Form. Currently in the Special Cause of Loss Form there are three major categories of exclusions that relate to equipment breakdown:  artificially generated electrical current; mechanical breakdown; explosion of steam boilers…  By use of this new endorsement those exclusions are eliminated.  There are limitations specific to Equipment Breakdown coverage that is then added in the form language.   Ammonia Contamination and Hazardous Substance amounts of insurance can be scheduled on the form. Because of the introduction of the new Equipment Breakdown Form, the ISO has also introduced the Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment to allow the insurance companies to either suspend or reinstate coverage for certain pieces of equipment.

Increase in Rebuilding Expenses Following Disaster CP 04 09

This endorsement is introduced as a response to nationwide disasters and catastrophic events that have tested the limits of the policy as relates costs of labor; cost of materials due to demand and limited resources (demand surge). The ISO circular references Hurricanes Katrina and Rita wherein estimates per square footage of housing reconstruction quadrupled in the first six months after the events.

The new endorsement provides an option for insuring additional expenses when the costs of labor and/or building materials increase as a result of a disaster AND the total cost of repair or replacement exceeds the applicable limit of insurance.  Some significant sections of the endorsement include:

  1. Buildings to be insured are indicated on the endorsement
  2. Coverage will only apply as a result of an event that is declared a disaster as well as damage resulting from an event which occurs in close proximity to the disaster
  3. Coverage is on an annual aggregate basis
  4. The maximum amount of additional coverage is determined by applying a specified percentage to the limit of insurance for specific insurance.

Dependent Properties in the Supply Chain (Business Interruption)

Dependent Property Coverage is written by scheduling the business locations that the insured is “dependent upon” and have chosen to insure.  The new endorsement allows for secondary dependencies. An example provided by the ISO of a secondary dependency is a situation in which the insured’s supplier (a dependent property identified in the schedule of the current endorsement) is unable to deliver products/services due to interruption in the business of an entity (for example, a manufacturer) upon which the supplier depends but was NOT a supplier that the insured directly depended upon or was identified in the endorsement.

The new option for covering secondary dependencies is focused on contributing and recipient locations as defined in the form.  Business Income losses arising out of physical loss or damage at the secondary location is subject to the same Limit of Insurance that applies to the scheduled dependent location and does not increase the coverage.  The coverage territory is reiterated on the form to avoid any confusion that the coverage goes beyond the stated territory of the policy for example for locations outside of the United States.

Form Change Impact

COVERAGE FORMS

Building and Personal Property FormCP 00 10 Debris Removal:  The additional limit provided is increased from $10,000 to $25,000. When no Covered Property sustains direct physical loss there is coverage in the amount of $5,000 provided for removal of debris of others’ property. Coverage is increased and expanded in definition
Building and Personal Property FormCP 00 10 Fire Department Service Charge:  The policy clarifies that the $1000.00 limit provided applies to each premises insured. No change in coverage
Building and Personal Property FormCP 00 10 (various) Business Personal Property in Described Structures:  The coverage provided for Business Personal Property is clarified to cover both in the building orstructures covered in the policy. No change in coverage
Building and Personal Property FormCP 00 10 (various) Coverage Radius:  The language is clarified as relates “where” coverage must occur for coverage to apply.  The form extends coverage to 100 feet from the building or 100 feet from the described premises, whichever distance is greater. The revision broadens coverage with respect to a tenant in a multiple-occupancy building in such situation where the premises are described in terms of the actual area (quarters) occupied by the tenant. Note:  many company forms already include this clarification.
Building and Personal Property FormCP 00 10 (various) Property in Storage Units:  A new coverage extension is introduced on the Commercial Property Form for Business Personal Property Temporarily in Portable Storage Units.  The coverage is for 90 days with a sub-limit of $10,000.  The property must be located within 100 feet of the described premises. A higher limit can be indicated on the Declarations Page. This can be considered an extension of coverage, however, if an insurer previously treated property in storage as property in the open then then coverage is decreased to the sub-limit.
Building and Personal Property FormCP 00 10 Newly Acquired Business Personal Property: Currently the Commercial Property forms provide $100,000 additional coverage at each building covering newly acquired business personal property.  This provision has been removed.  There is no change for newly acquired business personal property located at newly acquired locations.  If the insured has “newly acquired” property at their location, the coverage should be increased accordingly to reflect that limit. Coverage is reduced
Building and Personal Property FormCP 00 10 & Cause of Loss Forms Vegetated Roofs:  This is one of the new “green” extensions in Commercial Property. Currently the property form excludes trees, shrubs, plants and lawns and then sub-limits the coverage. The property form is revised to include lawns, trees shrubs and plants which are part of a vegetated roof and thereby treating such property as an insured part of the building so that an existing vegetated roof can be replaced with like kind in the event of a loss.  There are some exclusions that are revised to relate directly to a vegetated roof. Coverage is broadened.
Building and Personal Property FormCP 00 10 & Business Income Form (various) Electronic Data in Building Equipment:  Currently ISO Commercial Property forms limit coverage for electronic data to $2,500 on an annual aggregate basis. The form is revised to remove the $2,500 limitation with respect to loss or damage to electronic data which is integrated in and operates or controls the building’s elevator, lightning, heating, and ventilation, air conditioning or security systems.    Coverage is broadened
Building and Personal Property FormCP 00 10; Business Income Form  CP 00 30/00 32; Cause of Loss Forms(various) Ordinance or Law Exclusion:  The form is revised to include the word “compliance”.  The new form states the “enforcement of or compliance with any ordinance or law.  This is a clarification of language No change in coverage
Building and Personal Property FormCP 00 10; Business Income Form  CP 00 30/00 32; Cause of Loss Forms(various) Options for Increasing Specified Limits:  The coverage forms currently include the ability to increase coverage via an entry on the Declarations Page for certain categories of coverage.  This change allows for increased coverage via Declarations for the additional coverages of Electronic Data;  Newly Acquired Locations; Interruption of Computer Operations and Limitations for Theft. These changes are new coverage options
Business Income FormCP 00 30 and CP 00 32 Extended Business Income, Extended Period of Indemnity:  The Business Income forms provide automatic coverage for 30 days’ following the end of the period of restoration for residual loss of income. The form revises the 30 days to 60 days. Coverage is increased.  Note: Many insurance company forms automatically include more than 30 days.
Cause of LossCP10 10, CP10 20,CP 10 30 Earth Movement Exclusion:  The term “earthquake” now incorporates tremors and aftershocks. Language is added to the Earth Movement exclusion to reinforce that earth movement is excluded regardless of whether it is caused by an act of nature or is otherwise caused. No change in coverage
Cause of LossCP10 10, CP10 20,CP 10 30 Water Exclusion:  The Water Exclusion CP 1032 and is now incorporated in the base policy forms No change in coverage
Cause of LossCP 10 30 Entrusted Property:  The revision is included to distinguish between those who have a role in the insured’s business such as partners/employees and others to whom property may be entrusted such as bailees or tenants. Specifically there is an exclusion for loss or damage caused by…dishonest or criminal acts by…anyone to whom the insured entrusts the property. Coverage is broadened
Cause of LossCP 10 30 Wear and Tear Exclusion—Special Form:  The coverage is expanded to include coverage for water damage in the “specified causes of loss” to include accidental discharge or leakage of water or waterborne material as the direct result of the breaking apart or cracking of certain off-premises systems due to wear and tear. Coverage is broadened
Cause of LossCP 10 30 Covered Cause of Loss:  The term “risk of” is deleted.  This change has been done specifically to clarify the collapse exclusion but has a broader impact. This is modified for clarity purposes No change in coverage
Form Change Impact

ENDORSEMENTS

Business Income Report/Work Sheet:CP 15 15 The worksheet has been modified to 60 days rather than 30 days for the Extended Period of Indemnity as modified in the Business Income Form No change in coverage
Debris Removal and Outdoor Trees, Shrubs and PlantsCP 04 15 and CP 14 30 Debris Removal:The $10,000 additional limit for debris removal is increased to $25,000. Note: Many company forms automatically include this limit automatically.

Outdoor Trees, Shrubs and Plants:

This specifies that debris removal is included in the limit provided for this coverage

Coverage is broadened
Radio or Television Antennas—Business Income or Extra ExpenseCP 15 50 The endorsement removes a “reference” to the Cause of Loss Earthquake.  If the Earthquake Form were attached to the policy it’s terms and conditions are therein specified No change in coverage
Utility Services—Overhead Transmission LinesCP 04 17 (Direct) and CP 15 45 (Time Element) The endorsement clarifies that the term “transmission lines” also includes “distribution lines” which is the vernacular in the power industry for a system that provides electricity to residential and commercial users by reducing voltage through the use of substations, transformers and other devices.  The forms now reinforce the intent to cover both transmission and distribution systems which serve in the transmission of power or communication service. No change in coverage
Ordinance or LawCP 04 05; CP 04 38; CP 15 01; CP 15 02; CP 15 08; CP 15 09; CP15 25; CP 15 31; CP 15 34 Ordinance or Law:  The endorsement form is revised in the same manner as theexclusion in the Coverage Forms to include the word “compliance”.  The new form states the “enforcement of or compliance with any ordinance or law. This is a clarification of language No change in coverage
Condominium Commercial Unit-Owners Changes—Standard Property PolicyCP 17 98 The endorsement modifies three sections of the Condominium Unit Owners Policy: Coverage Radius; Business Personal Property in Described Structures; and Newly Acquired Property.

  1. Coverage Radius is modified to state 100 feet from the building or described premises whichever is greater
  2. Clarifying that coverage applies both in a building or structure

 

No change in coverage
Building Glass Tenants Policy EndorsementCP 14 70 This endorsement was first introduced in 2007 to facilitate writing coverage for building glass under a tenant’s policy that did not cover the building. This endorsement simply allows for the deductible for this coverage to be added on the endorsement rather than on the Declarations Page No change in coverage
Theft Exclusion EndorsementCP 10 33 The Theft Exclusion Endorsement currently does not contain a schedule.  The new edition date will display a schedule of locations so that there is clarity as to which location the exclusion applies No change in coverage
Flood Coverage Endorsement and ScheduleCP 10 65; CP DS 65 Currently the Flood Endorsement states there is no coverage for loss from any Flood that begins before or within 72 hours after the inception date of the endorsement.  The prior form did not make any distinction concerning renewal policies. The revised form provides that the 72 hour waiting period will not apply when the prior policy included flood coverage and the policy periods are consecutive without a break in coverage. Coverage is broadened
Payroll Limitation or Exclusion OptionCP 15 10 The payroll endorsement is being modified to provide a means of limiting or excluding the payroll expense of “any category of employees or individual employees” The term “ordinary payroll expense” and its definition are removed from the endorsement.  The title, also, will no longer refer to the word “ordinary” and the word “ordinary” will no longer appear in other sections such as the “coinsurance section”. The revised endorsement serves the same purpose as the prior one but can be used to address any category of employee on the insured’s payroll. No change in intent—clarification of definition
Condominium Commercial Unit-Owners Optional Coverage:  Loss AssessmentCP 04 18 Currently the endorsement places a $1,000 limitation on an assessment as a result of a deductible on the condominium association policy.  This endorsement provides a means for selecting a higher limit. Coverage is broadened
Utility Services—Wastewater Removal (Time Element)CP 15 45 The Utility Service Time Element endorsement is being revised to add a new category of utility service:  wastewater removal property. By definition, wastewater removal property is a utility system for removing wastewater and sewage from the described premises other than a system designed primarily for draining storm water. The utility property includes sewer mains, pumping stations and similar equipment for moving the effluent to a holding, treatment or disposal facility; and includes such facilities. Coverage is broadened
Earthquake Sprinkler Leakage DeductibleCP 10 40; CP 10 45 In 1999, the EQSL Endorsement CP 10 39 was withdrawn from the series and EQSL could be purchased by activating the EQSL ONLY option on the EQ endorsements CP 10 40 and CP 10 45. The revision in this form adds language providing that the EQ deductible provisions outlined in the EQ endorsement (that is, the percentage deductible) do not apply to the EQSL—Only coverage. Instead the Fire deductible applies. Coverage is clarified and broadened
Builders Risk—Theft of Building Materials, Fixtures, Machinery, EquipmentCP 11 21 This change relates back to the issue of “entrusted property” discussed above. Entrusted Property:  The revision is included to distinguish between those who have a role in the insured’s business such as partners/employees and others to whom property may be entrusted such as bailees or tenants. Specifically there is an exclusion for loss or damage caused by…dishonest or criminal acts by…anyone to whom the insured entrusts the property. There is no change in “intended coverage”
Green Upgrades Endorsement RevisionCP 04 02 The schedule on the form is revised to identify which property is subject to upgrade when not all personal property is not to be covered for Green Upgrades. No change in coverage
Form Change Impact

NEW ENDORSEMENTS

Exclusion of Loss Due to By-Products of Production or Processing Operations (Rental Properties)CP 10 34 New form introduced to be attached to policies issued to owners and tenants of rental premises.Discussion of the change is included above. There is no change in “intended coverage”
Specified Property Away from PremisesCP 04 04 New form introduced to provide coverage for business personal property temporarily away from the described premises in the course of daily business activities, while in the care, custody or control of the insured or an employee of the insured.  Coverage is broadened
Higher LimitsCP 04 08 Currently the insurance form has many options to increase coverage via the Declarations Page. This endorsement is an alternative to activating the coverages on the Declarations Page by using this multi-purpose endorsement No change in coverage but new coverage option
Equipment BreakdownCP 10 46 This is a new optional endorsement which is compatible with the Special Form Cause of Loss CP 00 13.Discussion of the change is included above New Coverage Option
Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment CP 10 47 Because of the introduction of the new Equipment Breakdown Form, the ISO has also introduced the Suspension or Reinstatement of Coverage for Loss Caused by Breakdown of Certain Equipment to allow the insurance companies to either suspend or reinstate coverage for certain pieces of equipment.Discussion of the change is included above New Coverage Option
Deductible By LocationCP 03 29 Currently there is a Multiple Deductible Form CP 03 20 adopted in most states which is designed to allow for the selection of different deductible by location and peril.  This schedule of endorsement shows separate locations and the deductible for each location. This is a new optional way to show deductibles but does not affect existing deductible options.
Limitations on Coverage for Roof SurfacingCP 10 36 This endorsement provides options for insuring roof surfacing on an ACV basis and for excluding cosmetic damage to roof surfacing. The cosmetic exclusion option applies only to the perils of wind and hail, and could be written without regard to the underlying valuation clause. New Coverage Option. This would be chosen by an insurer when they deem it necessary typically on an older building
Increase in Rebuilding Expenses Following Disaster CP 04 09 This is a new endorsement to add additional expenses following a disaster.Discussion of the change is included above New Coverage Option
Dependent Properties in the Supply Chain (Business Interruption)Endorsement to CP 15 01; CP 15 02; CP 15 08; CP 15 09; CP 15 34. Dependent Property Coverage is written by scheduling the business locations that the insured is “dependent upon” and have chosen to insure.  The new endorsement allows for secondary dependencies.Discussion of the change is included above New Coverage Option
Discharge From Sewer, Drain or SumpCP 10 38 This is a new endorsement to cover discharge from a sewer, drain or sump and pertains to physical damage and/or time element loss as indicated in the schedule. The amounts stated in the schedule are sub-limits and therefore do not increase the underlying limits of the insurance provided.  An annual aggregate limitation can be selected via the schedule on the endorsement. New Coverage Option
Theft of Building Materials and Supplies (Other Than Builders Risk)CP 10 44 Currently there is a limitation under the Special Cause of Loss form for theft coverage for building materials and supplies that are not part of the building or structure to that which is held for sale by the insured.  The new endorsement provides coverage for the theft of building materials and supplies that are located on or within 100 feet of the premises when such property is intended to become a permanent part of the building or structure. New Coverage Option
Protective Safeguards (Fire)CP 04 11 The new endorsement replaces the interline form IL 04 15.  This endorsement, therefore, only pertains to Commercial Property insurance and contains the same provisions as the current endorsement. No Change in Coverage
Food Contamination (Business Interruption and Extra Expense)CP 15 05 This new option covers extra expenses and business income loses arising out of food contamination and pertains to the Business Income And Extra Expense Coverage Form.  Coverage is limited to loss of income/extra expense due to the closure of the business. Covered expenses include: cost of cleaning equipment; cost of replacing food; medical testing and vaccination and advertising expense. New Coverage Option

Written by:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center

 

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Producer Contract Fundamentals

Contracts

One of the amazing things that occurs in some agencies, even successful ones, is that often the producers have not signed contracts.

There are three main reasons for the lack of contracts.

The most common is that the agency owner and the producer has a verbal agreement. Usually the owner is reluctant to put the agreement in writing for fear that the producer will not sign one any way and might leave if forced to sign.

The second reason is that the owner just did not take the time to draft an agreement or did not know were to start. The third most common reason is that the owner feels contracts are a waste of time and money. They believe that if a producer wants to leave and violate the contract they will.

The last reason does have a bit of truth to it. However, if a producer does violate a contract, at least the owner does have a means of recourse. This is especially true if the agreement is fair.

Those who feel a verbal agreement will suffice or fail to take the time to write an agreement are playing with fire, and will get burnt. Without a contract, any dispute must rely on verbal agreements, implied agreements and common practices. The results of such disputes are up in the air. At least with a contract both sides have a common starting point in which to resolve their disagreements.

One of the biggest reasons to have a contract with a producer is to clearly state who owns the business. Producers often feel that since they generated the business they own it. Whereas many owners feel that since they own the agency, they also own all of the business. The conflict arises when these two opposites do business together.

The time and money it takes to put a contract together seems trivial when a producer with a $250,000 commission book of business walks away. Sometimes the ownership issues pop up only when the agency owner is retiring, only to find out their agency is worth a lot less because they do not own the producer’s book of business.

The Starting Point
There are many boilerplate or do it yourself contracts out there. Some of these are quite well written. They can be used as the starting point for negotiations between the parties. Or, you may choose to start with a plain language Letter of Intent that outlines all the terms agreed to by all parties.

The next step is important. HAVE A COMPETANT LEGAL ADVISOR REVIEW AND APPROVE ALL YOUR CONTRACTS. Boilerplates are fine to an extent, but laws change and vary from state to state, so never do all the contract work without an attorney who has experience with producer contracts. If you start with a Letter of Intent, the attorney can use it as the raw material for a contract.

So what are the key elements that make up a good contract? The first thing to consider is that each agency and producer is unique and that a contract can and should vary based on the circumstances. There are, however, some basic components that each contract should contain. The most common elements are:

Parties to the Agreement and Recital – State the name of all parties (individuals and entities) that are entering into the agreement. The recital provides a brief overview of the background and why the agreement is being written.

Term of Employment or Contract – State how long this agreement will run. It can be open-ended, if so desired.

Responsibilities of the Producer – Describe the duties expected from the producer. Always add a line that duties include any reasonable task requested or assigned to him/her by the employer. This is a good “catch-all” phrase.

Obligations of the Employee – Explain what the employer will provide the producer to enable them to perform their work.

Compensation and Benefits – Outline the compensation plan and any benefits provided.

Exclusive Nature of Employment – State that the employee is to devote their full-time and efforts exclusively for the benefits of the business. This section should not be included in a contract with an independent contractor.

Termination of Agreement – Describe what the rules will be for termination of employment.

Death and Disability Issues – Many contracts omit this valuable section. Make sure it is understood how the death or disability of the producer will impact the agreement.

Non-Disclosure and Non Piracy – Clearly state the importance of non-disclosure and non-piracy of the agency materials. If included in the contract, it is most likely to hold up in court.

Ownership of Accounts, Expiration Lists and Renewals – Describe how the ownership of the accounts will be handled.

Injunctive Relief and Damages – Spell out the ramification of any violations of the agreement.

Assignment of Agreement – Allow for the assignment of the contract to a third-party, such as a buyer of the agency.

Invalidity of Specific Sections – This section allows for the rest of the agreement to remain intact, if a specific section becomes invalid for some reason.

In addition to these sections, there will be additional sections related to common legal practices in a contractual agreement, such as Applicable Law, Binding Effects, Amendments, Waivers, Arbitration and Complete Agreement.

Is it Negotiable?
Some of these sections are negotiable, such as Compensation and Obligation of the Employee. It is important, however, that the agency owner not negotiate on other sections such as Non Disclosure, Assignment of Agreement and Termination of Agreement.

The sections that tend to be the most important to the owner and the producer revolve around compensation and ownership issues. The approach towards these two issues needs to be customized based on the needs, expectations and position of the parties.

Insights on how to handle producer compensation was addressed in a prior article (VVVVV). The bottom line on compensation is that it needs to be rewarding and motivating for the producer, affordable to the owner and fair to both parties.

Ownership of Accounts
There is a wide range in how account ownership is handled, or mishandled, by many contracts today. Some agreements have the producer owning it all, some have the agency own it all and some fall in between.

The problem is that sometimes account ownership has been used as the vehicle for a vesting agreement or deferred compensation plan. It is important to keep the concept of account ownership separate from the concept of a vesting agreement or deferred compensation plan.

The ownership of the accounts, renewals and expiration lists should always remain with the agency. The contract should clearly state this fact. This will prevent any misunderstanding about who owns the accounts. The vested interest, if allowed, should be strictly a financial benefit to the producer, not an ownership interest in the accounts.

If the two parties agree to some sort of vesting or deferred compensation, that should be spelled out separately from account ownership. In a vesting agreement, the producer has a vested interest in some portion of the renewal commissions generated by the accounts, while the ownership still remains with the agency. This agreement can be part of the employment contract or it can be its own agreement.

A deferred compensation plan can be effectively the same as a vesting agreement. It is probably less confusing to use the deferred compensation terminology rather than the vesting terminology, since the latter may be confused with an ownership of the accounts.

Keep in mind that a deferred compensation plan can be unrelated to the producer’s book of business. For example, the employee may earn $10,000 in deferred compensation per year of employment.

The terms of the deferred compensation or the vesting agreement needs to be clearly stated. Why bother saying that a producer is 50% vested in their accounts without describing how the value will be determined? Failure to state how the value is determined will only cause more problems.

A “rule of thumb” multiple for value is the most common approach. The main problem with a rule of thumb, such as one times commission, is that it may not reflect the fair value of that particular book of business. It makes sense to include the option for a professional appraisal if a dispute arises.

The contract can also allow the producer to buy the accounts from the agency. This makes the agreement bilateral and may help the agreement to be construed as fair in the courts. The agency, however, should always reserve the right to sell (or not).

Summary
Good producers are hard to find. For an agency owner to spend a lot of time and money finding and developing a good producer, it only makes sense to have a clear understanding of what their agreement is. When both parties know what the terms are and agree to them in writing, it tends to keep both sides honest and more likely to follow the terms.

The legal world is not perfect and valid contracts sometimes don’t hold up for one reason or another. An agency’s clients are better off with the proper insurance then no insurance at all. In a similar fashion, an agency and producer are better off with a written contract then no contract. A well-written producer contract is a form of assurance to a good relationship between the agency and the employee.

About the Authors.

Bill Schoeffler and Catherine Oak are partners in the international consulting firm, Oak & Associates, based in Northern California. The firm specializes in financial and management consulting for national and international insurance agencies, including valuations, mergers acquisitions, clusters, sales and marketing planning as well as perpetuation planning. They can be reached at (707) 936-6565 or by e-mail at catoak@sonic.net. print

 

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Let’s Sell Life Insurance in 2013 Improving our Bottom Line

 

As we round the corner to 2013, we are all in the budget process and hopeful that our profitability will improve next year. We have already learned to work lean and mean by decreasing our work staff but now we have to look to new ways to make money WITHOUT adding overhead.

The Insurance Community Center and University has a solution for you.

Our world has changed. Ten years ago or more, our property and casualty insurance companies were begging us to sell their life products offering us special trips and prizes tied into life sales. That just is not happening anymore, few property and casualty companies are pushing the life sales with the exception of many of the direct writers. So it amounts to us not having pro-active markets; not being enthused by the sale and passing up the sale—missing the revenue that would be a natural add on to our book of business.

Over the past 30 years, I have talked to many Property and Casualty brokers about adding life Insurance products to their product offerings, rounding out their own accounts. Depending on the size of the agency, we have heard a lot of reasons why they are NOT selling life insurance or how they are attempting to create that sale such as:

We do not want to sell life insurance because:
1. We are a P & C shop and don’t want to get into the life area
2. We are a P & C shop and have no one that knows anything about life
3. We don’t have the time!

We would like to make money selling life insurance, but:
1. We would have to add a life producer to our agency
2. We would have to cross train one of our over-worked P & C people to sell and handle life insurance
3. We would have to refer the life client to the one branch office that handles life insurance
4. We have a relationship with a life agent that gives us a split on the commission
All of these excuses or solutions amount either to lost revenue (premium leakage) or incurring additional overhead expense.

For those P & C agents that have attempted to enter the life industry, many of them have crashed and burned in the process: For those P & C agents that have adopted the procedure of referring their trusted clients to an outside entity, not only are they losing control and revenue but also putting that customer in contact with a firm that is not branded as part of our operation. Whether it is a life wholesaler from one of your carriers, or a firm that you are collaborating with, you still have the issues of trust and access.
We have to approach this New Year with a new directive—to increase our revenue in writing life insurance WITHOUT overburdening our staff or add more overhead cost. By every study that LIMRA has published over the last 20 years the Life Insurance market is under served, fewer people than ever are being contacted about Life Insurance and by all accounts there are fewer agents selling the product. With the contraction of the retail distribution system selling Life Insurance over the past 20 years there are fewer agents being trained to sell the Life Insurance products – so competition, especially for the more complex and lucrative sales is getting lighter and lighters spelling out opportunity for producers.

By partnering with Quick life, you can remove the barriers and expense to writing life insurance. The Quick Life platform solves the structural problems.

Quick Life creates an immediate back office support system, which eliminates the overhead needed to create a life and annuity department. Quick Life is a delivery system that produces consistent results.

Quick Life Structure:
• Provides online quoting of competitive carriers
• Factors in health issues before underwriting
• Allows application taking from all carriers over the phone
• Takes over all parts of the underwriting process, including examinations and signatures
• Facilitates appointments with needed carriers
• Has concierge service which eliminates any producer time
• Will assist in the servicing of in force policies.
• Provides street compensation to the producer

Quick Life Delivery:
• Is structured to allow greater capacity
• Utilizes existing staff
• Integrates internal social media and technology based marketing systems to existing and new clients
• Allows for involvement and control by broker, without commensurate time commitment
I have been using this platform myself for the past 4 years and it has allowed me to create a structure that historically would have required time and capital. Quick Life is working together with the Insurance Community Center to make this platform available to all of its members. For details, please visit – http://www.iccquicklife.com or contact Insurance Community Center Attend our seminar on October 11th titled Sales Opportunities in Life & Annuities—An Introduction to Quick Life taught by George Fraser, Director of Marketing for Quick Life.
This could be the most valuable hour you spend preparing to succeed in 2013.

Written by:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center
and
George C. Fraser III,
Director of Marketing
Quick Life

 

 

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Upcoming Webinar Classes! Register with Us!

 

Topic: Insight on Errors and Omissions (E & O)
Date: September 12 & 13, 2012
Time: 9am – 11am PST 10am – 12pm MST 11am – 1pm CST 12pm – 2pm EST
Credits 4 hrs California Dual Approval All other States Fire & Casualty
Course Description
Course Number
Non Members: $50.00 


University Subscribers: Free (Login Required)  Join University

 

Al Parizo AFIS

CE Approved States CA, CO, FL, ID, IN, IL, IA, LA, MA, ME, MO, NE, NH, NV, NY, NC, OR, PA, TN, TX, UT, WI, WY

ALL Webinars can be attended for educational purposes in all states


Topic: Farm Liability
Date: September 19th, 2012
Time: 9am – 11am PST 10am – 12pm MST 11am – 1pm CST 12pm – 2pm EST
Credits 2 hrs Fire & Casualty
Course Description
Course Number
Non Members: $50.00 


University Subscribers: Free (Login Required)  Join University

 

Casey Roberts, CIC, AFIS, ACSR President, Laurus Insurance Consulting

CE Approved States CA

ALL Webinars can be attended for educational purposes in all states


Topic: Directors & Officers Liability
Date: October 10th, 2012
Time: 9am – 11am PST 10am – 12pm MST 11am – 1pm CST 12pm – 2pm EST
Credits 2 hrs Fire & Casualty
Course Description
Course Number
Non Members: $50.00 


University Subscribers: Free (Login Required)  Join University

 

Marjorie L. Segale AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR Director of Education, Insurance Community Center & President, Segale Consulting Services, LLC

CE Approved States CA (Pending in FL, ID, IN, IL, MA, NE, NV, OR, TN, TX, UT, WI, WY)

ALL Webinars can be attended for educational purposes in all states

 

 

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Avoid E&O with our E&O class for Insurance Professionals

Join Us this Wednesday & Thursday for an Online & Interactive E&O Class.

REGISTER HERE Space is limited – Reserve your seat now.

This course will discuss the common types of errors and omissions that insurance broker/agents make in the transaction of insurance. The course uses the acronym PRIDE to instruct on how to avoid common mistakes. PRIDE stands for: procedures, regulations, implementation, documentation and education. Following the class, the participants will be in a better position to identify their exposure to making errors and how to implement procedural safeguards.

1. Overview of E & O
2. Procedures
3. Regulations and Requirements
4. Implementation of Procedures
5. Documentation

Wednesday & Thursday
September 12 – 13
Two Day Class for CE Credit

REGISTER HERE

 

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Farm Lecture Series for Insurance Professionals

The Insurance Community/University is pleased to announce the beginning for their agricultural insurance series of continuing education classes.  This series is brought to you by the Community and the Co-Founders of the AFIS Designation: Laurie Infantino and Marjorie Segale.  Courses are approved for 2 hours of CE credits in some states—refer to the state listing on the class calendar.  Update your knowledge in agricultural insurance and farm changes by attending this series.

To register for any of these subjects, click here!

The series will include:

Farm Property August 22, 2012 Casey Roberts, CIC, AFIS, ACSR President Laurus Insurance Consulting
Agricultural Equipment Breakdown August 29, 2012 Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR President, Insurance Community Center, Insight Insurance Consulting

 

Sponsored by : The Hartford Steam Boiler Inspection and Insurance Company

Farm Liability September 19, 2012 Casey Roberts, CIC, AFIS, ACSR President Laurus Insurance Consulting
Crop Insurance November 28, 2012 Rita McMullan AFIS, CPCU, CPIW, AAI President, PDM Insurance Agency
Dairy  Farms December 12, 2012 Mike Sergeant AFIS Sales & Service Director, The Hartford Financial Services Livestock

Sponsored by Hartford Livestock

Livestock December 19, 2012 Mike Sergeant AFIS Sales & Service Director, The Hartford Financial Services Livestock

Sponsored by Hartford Livestock

 

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