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Read the Policy You’re Selling

Author: Tim Dodge

“Insurance professionals should seek continually to maintain and improve their professional knowledge, skills, and competence.” (The Canons, Rules, and Guidelines of the CPCU Code of Professional Conduct, Canon 2)
“Insurance professionals should be diligent in the performance of their occupational duties and should continually strive to improve the functioning of the insurance mechanism.” (Canon 4)

“Last Sunday morning there was a 24-inch water main break on the road where my insured is located. The water main was only 20 yards from the insured. We have them written under a Businessowners policy that has the broadest coverages available. Yesterday, the adjuster indicated, ‘the claim might be not covered because of surface water.’ However, when we Google what is surface water, it‘s quite vague. Therefore, it has been difficult to explain to our client that the water main damage most likely will not be covered by the comprehensive policy we tailored for them. I hope you might have other similar claims that you recall, or perhaps there is some case law(s) or bulletins which you might be able to research.” (Email, sent with no citations or attachments of policy forms, from the president of an agency outside New York in the eastern U.S.)

“I write a property policy using ISO form CP 00 10 06 07. The building definition includes buildings under construction for materials, equipment, supplies, etc. The policy also has the special causes of loss form CP 10 30 06 07. Question: If there is a loss to building materials due to theft, would there or would there not be coverage?” (Email from another anonymous producer in a Midwestern state)

“Is the trigger for property damage in a Commercial General Liability policy the date the product was manufactured or the date the product was put to use? What is the interpretation of ‘occurrence’?” (Email from a CPCU in another Midwestern state)

What do these three questions have in common? The producers could have found the answers quite easily by reading the contracts that they were selling.

In the first question, the agency president claimed that the insured had “the broadest coverages available,” yet the news about a surface water exclusion apparently came as a surprise. The water damage exclusion in property insurance policies dates back decades. The individual did not know the product the agency had sold.

The second questioner knew what the coverage forms were. However, rather than reading the forms to determine whether coverage would apply to a theft of building materials, the questioner asked someone else (not me) to do it.

The third questioner, who is actually bound by the ethics canons cited above, and who has taken the intensive CPCU courses and passed the exams, apparently did not review the CGL policy, did not know that coverage under that form has always been triggered on the date the injury or damage occurs, and in fact did not check the form’s definition of the word “occurrence.”

All of these individuals hold licenses issued by their respective state insurance regulators. They have been granted legal authority to give other people advice about insurance decisions. They are permitted to accept commission payments for the sale of contracts potentially involving tens or hundreds of thousands or even millions of dollars. No doubt some of them prominently use the Trusted Choice® logo in their advertising. And yet, they do not know what is in the contracts they are selling. Worse, they don’t display any inclination to find out on their own.

I wish I could tell you that these questions are unique, but they are not. It is very common for producers to ask me or my peers around the country, “Does a [fill in the blank] policy cover [a particular loss]?” That question immediately implies that all policies of that type are the same, that there’s no difference between ISO, GEICO, Progressive or Travelers auto policies. That a Chubb umbrella is the same as one issued by The Hartford. That a GL policy issued by Scottsdale says the same thing that one issued by CNA says. That is demonstrably incorrect. As evidence, I will cite my own previous blog posts:

  • An ISO homeowners policy covers dwellings that house up to four families. At least one insurer’s policy does not cover three- and four-family dwellings.

  • A theft claim was not covered because two words, found in ISO homeowners policies, were not in the one a Texas man bought. 

  • The afore-mentioned ISO Causes of Loss – Special Form contains a five-word phrase that would make the difference between coverage and no coverage for the owner of heavy equipment if the floor collapses. His policy will not provide the coverage.

  • A commercial auto insurer’s policy actually makes the application part of the legal agreement between it and the insured. In one part of that application, the insured acknowledges a duty to notify the insurer of new drivers. What happens if the person who normally handles that is on vacation or out sick when a new driver gets hired?

Here are the facts:

  • Insurance policy forms and endorsements for the same line of coverage but issued by different insurers have significant differences.

  • Insurance producers offer these different policy forms and endorsements for sale to their clients.

  • Leaving aside what the courts say about a producer’s legal duty to insurance buyers, those buyers rely on producers to know what those forms and endorsements say.

  • Producers who do not know what the forms and endorsements say cannot give sound advice to their clients.

When people receive bad advice, they are more likely to make bad decisions. They may make bad decisions even with good advice; bad advice just makes a bad outcome more likely. When they make bad decisions and eventually suffer uninsured losses, people suffer. Not just the insured – innocent third-party claimants.

In one case involving a New York State agency, the insured had a special events policy covering a rodeo. Actually, the insured received a certificate of coverage, not a complete policy. After the event ended, some bulls got loose. An average professional bull riders bull weighs between 1,600 and 1,700 pounds. It’s not hard to imagine that a bull after a rodeo is at best anxious and at worst frightened. These bulls injured several people before they were subdued. People who came out for an evening’s entertainment ended the night in hospitals.

When they sued, the insured looked to his special events policy for coverage. This policy was obtained from an employee of a managing general agency, brokered to an employee of the retail agency, which was managed by a veteran agency principal. And before the loss occurred, none of them noticed that the policy excluded coverage for bodily injury or property damage caused by animals.

A special events policy covering a rodeo did not cover injuries caused by animals, and nobody noticed. Please ponder that for a moment. Animals are kind of the stars of the show at rodeos.

So, no coverage under the events policy, so the insured sues the agency. Trial court dismisses the lawsuit, insured appeals, and this time he wins. The agency couldn’t even cite the insured’s duty to read the policy as a defense, as there was no policy for the insured to read. He had only a certificate. The appellate court has sent the case back to the lower courts for a trial. I doubt the agency’s E&O carrier will let things get that far. The agency in question has not been an IIABNY member for well over a decade, so I don't know who that carrier is.

Did I mention that the injuries occurred in the summer of 2012, and the appellate court’s decision just came down four months ago? In the meantime, have the people injured by the bulls received anything? Only if the insured emptied his pockets. The guy is a logger by trade and puts on rodeos as a sideline. Something tells me he’s not independently wealthy.

People enjoying a night out, injured by agitated animals who weigh almost as much as a car, and they probably have received no compensation for their injuries four years after the fact because three insurance professionals didn’t know what they were selling.

I believe that product knowledge is an ethical issue. The stakes are too high, the consequences too severe, the potential financial loss is too great for we as insurance professionals to shrug, say the policies are all the same, and focus on whether we can get the premium down fifty bucks. Ignorantly selling someone the wrong product can and does harm people.

It is one thing if a client ignores your suggestion and buys lower limits or skips the coverage altogether. People can’t be forced to buy high uninsured motorists limits or flood coverage. It’s another thing altogether when the clients are never given the chance to make that decision because they’ve been told that they have “the comprehensive policy we tailored for them,” to quote the email above about the water main break.

We are insurance professionals. We do what we do to make a living, yes, but we also do it to give people peace of mind so they can go on about their lives and businesses. We can’t do that unless we know what we are talking about. That means keeping copies of the insurance policy forms and reading them. Sometimes the words are indeed vague and subject to interpretation (personally, I find interpreting policy language to be the fun part – here’s a good example about some kayaks.) That’s when the conversation should start about what it all means. However, the starting point has to be opening a paper or electronic copy of a policy form, finding the relevant provision, and reading what it says. No one can commit all these forms to memory, but the key is to know where they are and where to look for the answers when questions come up.

Sure, I can do that for you, Bill Wilson can do it, Chris Boggs can do it, and so can a lot of other people around this country who are smarter than I am. But I’m not the one who has to face the client, or answer a summons, or suffer a damaged reputation. I’m a guy blogging at a desk in Syracuse, and no one faces bankruptcy if I never get around to reading today’s email from Insurance Journal. But someone could face bankruptcy if an insurance producer sitting at a desk in Syracuse or San Francisco or San Antonio sells a policy to someone without knowing if it’s the right policy for that client.

We are insurance professionals. We are Trusted Choice®, for crying out loud. Maybe we’re not all CPCU’s, but that doesn’t mean we shouldn’t meet the requirements of the CPCU canons at the beginning of this article. We have ethical obligations to the people we serve. We owe it to them. We owe it to our peers in this industry that has treated us so well. We owe it to ourselves.

Read the policy.

Last Updated: June 28, 2016

Reader Response:

I just want to let you know how much I appreciated your article, RTFP, and it really struck a chord.
I like to say I started in the insurance industry when I was 3 years old – the year my father was hired as an (auto) adjuster for Heritage Mutual Insurance Co in Sheboygan Falls, WI. My mother was an RN and between the two of them we kids heard some interesting discussions around the dinner table. My father had moved up to Senior Claims Litigation Manager when he stepped into managing a company owned insurance agency and two years later he started his own agency. After I graduated from college, I took a part time job with him as a file clerk and later became a licensed agent and his officer manager. I didn’t know it at the time, but with his background, having him for a boss became the best resource possible for an insurance ‘newbie’.  As an adjustor, he had to know how to read a policy, and he passed that on to me.  I didn’t realize what that meant until I heard a fellow agent introducing him as ‘ old school’.  What I do remember was setting up our system for organizing the sample policy(s) binder(s) that we maintained for every carrier, every policy, and as many sample policies endorsements we could secure. 
Often I noted specific discussions with claims or underwriting regarding the coverage forms. But that was eons ago and definitely B.C. (before computers).  Technology was and still is, pushed at us, but it has not, in my opinion, lead to a deeper, broader, pool of knowledge within our industry. Instead I feel as if there is a subtle pressure to take the “Progressive Insurance” approach.  Have you ever called Progressive Insurance with a coverage question? They put you on hold to consult with someone else and then come back, ask what State you are calling from, put you on hold, and then try to explain what someone else has told them. I remember asking them to send me a ‘copy of the policy’. They couldn’t understand what I was asking for.    Yet, today,  this what I sense from agency management, a feeling that we shouldn’t  waste our time examining the issue/coverage/concept  - just pass it on.
My sister and I followed in Dad’s footsteps and today we are both what is referred to as a ‘well seasoned’ licensed CSRs. We work for different employers, but both are small (less than 7 producer/employees in total) independent insurance agencies.  We frequently talk about the pressure on us to ‘just get things done’, about the difficulty of keeping track of the ins/outs of carrier language, coverages, endorsements when an agency averages 8+ carrier contracts (plus excess/surplus lines).  About how no one seems to read policy language any more, but most especially, how as CSRs we are expected to find and ‘fix’ the producers errors – because they don’t know what they are selling.  Heaven forbid we take the time to research a coverage question or situation – just re-market that account to all our carriers!
Our industry is striving to be seen as professionals, to erase the ‘necessary evil’ perception, to rise above the current marketing trend that portrays insurance as another ‘commodity’, or as one of the new e-insurance starts up referred to it, ‘just another utility bill’.  I remind clients that they wouldn’t ignore their doctor,  mislead their attorney, or call their banker for a loan the day before they close on their new house.  Unfortunately, questions like those stated in your article, negate all of these efforts and darken our image all over again.   
Sincerely yours,
Wendy Lee Jungbluth, CISR Elite
​127 South Peyton Street
Alexandria VA 22314
​phone: 800.221.7917
fax: 703.683.7556

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