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Ask An Expert Briefs

IIABA's Virtual University VUpoint Newsletter
Vol. 18, No. 21 - Issue #432 - Friday, October 13, 2017
Copyright © 2017 by the Independent Insurance Agents & Brokers of America, Inc. 

The Virtual University’s Ask An Expert (AAE) service may be our best known member benefit. Daily we receive questions from members wanting help with denied claims, coverage and procedural issues, and agency management concerns. Our faculty includes some of the nation's foremost leading experts in the insurance industry. These volunteer faculty members generally charge for the time they give to our members. Think about that, the insight you get through our AAE service costs nonmembers THOUSANDS!

For the next two weeks, VUpoint subscribers have access to a few of these incredible insights right here. When the next edition of VUpoint is published, this AAE content go back into the members-only vault. And remember, beyond having access to all of our valuable Ask An Expert content, only members are allowed to ask the questions.
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Alerting Certificate Holders of Policy Cancellations

Question...


What is the best way to let certificate holders know that a commercial liability policy has cancelled?

Answer

FACULTY RESPONSES: 

It is not the agent's job to notify certificate holders that a policy has cancelled. The only notification requirements are those contained in the policy between the insurance carrier and the insured. The agent is not a party to that requirement. 

If you undertake to notify holders, you are creating major problems for yourself. If you agreed to do that in writing, you have taken on major problems for yourself. 

Remember, a certificate of insurance is a snapshot in time, it is only good the day it was issued. 

Don't notify holders and don't agree to do so. 

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There is no requirement in the policy to notify a COI holder of anything. If an agency takes it upon themselves to notify COI holders, they better do it to every COI holder for every account every time.

The agency has no obligation to notify the COI holder. If they voluntarily take on this task they are raising significantly the "duty of care" owed here. It's ripe for disaster.

If a COI holder is requiring to be notified of cancellation or non-renewal, then endorse the policy to have this accomplished.

Newly Acquired Vehicle 14-Day Grace Period

Question...

"Newly Acquired Vehicles" 14 day "grace" period for the customer to contact the agent. I believe this is standard with most insurance companies. With this clause, it allows a policy holder 14 days to notify the agent and for their policy to provide coverage. The question/complaint from some customers is why can't I wait until day 13 to add the vehicle? Why do I have to add it today when I told you?

Answer

The primary reason is because you know about it. Information known by the agency is presumed to be information known by the company. You have to comply with your agency contract. Plus, this is material information that changes the policy premium, which I guess is their beef. They think they are saving money, in reality, the vehicle should be added effective the date of ownership - regardless when they tell you; so there is no premium savings. 

Plus, what if they forget to tell you later? What if you forget to add it?

This seems like someone looking to game the system. They really want coverage immediately. No reason to try to put something over on the insurance company – there is no benefit to it.

Marijuana Growing & Its Effects on Coverage

Question...

We have a client that is insured under a H03 (4/91) and has been for the past eight years. They were sent a homeowners' questionnaire in which they stated they had installed an outdoor wood boiler in 2016. This prompted the company to do an inspection and the company found that the client had the outdoor wood boiler in a detached structure and in the structure, they are growing marijuana plants.

They only have 6 plants and they are for personal use only. No distribution or selling of the plants. This is legal in this state.

We now see that one company has added the question to their homeowner application. They have stated if answered "yes," they will not write the property, no matter how little is being grown or how it is used.

My question is this, is this as a valid cancellation reason? Are companies now going to manage what people are using for drugs as a means to not write homeowners' policies? What about people that are on Oxy or other narcotics that are being broken into? Will we have to start asking questions about what drugs are they are prescribed? Where does it end?

Answer

FACULTY RESPONSES: 

Insurance carriers can use any reason they so desire to provide or deny protection. Even if legal locally, marijuana is still illegal federally. No carrier is required to provide coverage forever.

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Increase in risk of loss is always a reasonable ground for cancellation or non-renewal.

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When there is an increase in hazard, the company is within its rights to non-renew the policy.

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I believe the company is within its rights to non-renew the policy based on the findings and report of the inspector. (I note it is a nonrenewal rather than a cancellation.) Addressing the issue of "where does it end" is certainly not in my bailiwick or that of this forum. We must hope that privacy protections work, certainly in the medical realm; but if a physical inspection of insured property, whether or not triggered by an honest answer on a questionnaire, finds there is an increase in risk in the opinion of the underwriter, it is the underwriter's prerogative to decline renewal.

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If the insured has a loss and post loss findings differ from the application; the claim will be denied.

It isn't worth the fight with the regulators. Move the account.

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Insurers in most states, including yours, can non-renew Homeowners coverage for any reason that's not illegal. Non-renewal may be prohibited, for example, when it discriminates against a protected class, but so far marijuana users and growers are far from being a protected class. 

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This is a nonrenewal, not a mid-term cancellation, and, if carriers are asking this question on applications, that would be an underwriting issue.

In most states, carriers can non-renew for any reason they like unless that reason is illegal (e.g., discrimination laws). Unless you have a law that prohibits non-renewal for marijuana cultivation, I doubt this action is illegal.

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The insurer's reasons seem justifiable as an underwriting concern.

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If you want to know what your state's DOI thinks about the validity of this cancellation or non-renewal, ask them. It's easy enough for your insured to file a complaint with the Bureau. Your primary task now is to find another company that will write this risk after you disclose all of the pertinent underwriting information you have.

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The insurance company has given a valid reason for their actions. Unless there is some statute in your state to the contrary, I think your client may have hit a dead end with this carrier. Speak with your other markets before submitting the risk to avoid excess work and insurance scoring data for your client. I would be interested in how insurers in other states are addressing this issue.

This is no different than back in the 80', markets did not write co-habitation for same sex situations. The marketplace will find its own equilibrium as more states move forward thru this market evolution.

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Underwriting standards include rejections for legal things that insureds own such as certain dogs and horses. So, the wood boiler and marijuana plants are as good a reason as dogs or horses. By the way, losses to certain items that are illegal under federal law have been denied coverage as contraband.