This question was posted to our Ask an Expert Service, a members' only benefit of the Big "I" natonal which is staffed by more than 50 volunteer industry experts:
COVID and all the coverage debates swirling around it has raised the question in our agency regarding the use of a disclaimer. Several in the agency think we should develop disclaimer language to, essentially, warn our clients that there may not be any coverage from a COVID-related loss. Can you suggest the best way to word such a disclaimer?
Big "I" VU Faculty Response:
Because of the questions surrounding insurance protection for COVID-related claims, agents from around the country are considering including COVID-related disclaimers in proposals, renewals and any other document intended for prospects and clients.
While this may seem a timely and effective method for avoiding errors and omissions (E&O) problems from COVID claims, in fact, using such a narrow disclaimer could worsen the agency's E&O exposure. Focusing on one potential exposure while not addressing or effectively ignoring all other exposures places the agent in a dangerous position.
Disclaimers focused solely on COVID, or any other “hazard of the day," open up major opportunities for a plaintiff attorney if an uncovered loss occurs or an improperly managed exposure results in a loss – that involves something other than COVID. Neither the deposition nor the witness stand is the desired time to explain a seemingly good, yet knee jerk decision.
Agents generally do not list every possible exclusion or limitation in a proposal or renewal, but a few are highlighted – generally those added by endorsement. But as every agent knows, or should know, the unendorsed policy language already contains exclusions and limitations.
Short of listing every exclusion, gap or limitation (which would require pages and pages of explanation), the only way the agent can adequately warn the insured about exclusions and limitations is by use of a well-worded disclaimer. Disclaimers are necessary but should not be narrowly focused.
Unless every possible exclusion or limitation is listed in the proposal, use very broad disclaimers. Narrow disclaimers focused on one or a few exposures can make the situation worse, not better.
Attempting to list every exclusion and limitation is just as dangerous from an E&O perspective as narrow disclaimers. There is no effective way to address all exclusions and limitations in less than 30 pages. Consider the commercial property policy as just one example. Beyond the specifically-listed exclusions, the commercial property policy contains:
- Exceptions to exclusions;
- A list of property not covered;
- Additional coverages, with conditions; and
- Conditions in general.
When a package of coverages is written (CGL, BAP, Umbrella/Excess, Crime, etc.), the exclusion and limitation explanation pages would fill an encyclopedia.
Disclaimers are necessary to remove the need to be this precise in every proposal. And from a sales and marketing perspective, presenting the client with a 60-plus-page proposal, most of which is explanations of the lack of coverage, lowers the chances of closing most clients.
How to write a disclaimer:
- Disclaimers should not address one or a few specific exposures.
- Disclaimers need to be broad enough to warn the prospect and client that there are exclusions and limitations that may not be addressed in the proposal.
- Disclaimers should point the insured to the specific policy language, warning the insured to not depend on the proposal for any interpretation of coverage.
- Disclaimers should clearly state that coverage determinations are often fact-based.
- Disclaimers should address the agent's market access. This means that the agent makes known to the insured that they have not researched the entire marketplace to see if a specific coverage is available; but they have researched their available markets.
Following is sample disclaimer language: “All insurance policies contain exclusions and limitations either within the policy language or added to the policy by attachment of an endorsement. Not all exclusions or limitations are addressed in this proposal. Exclusions and limitations can be absolute or conditional based on the specific circumstances and allegations of a loss or claim. Policy language dictates coverage. [Name of Agency] offers the coverage options available from the insurance carriers it is licensed to represent or from those with which it has a relationship; the agency makes no representations regarding coverages, exclusions or limitations in policies from any carriers not represented by the agency nor does the agency make representations regarding the availability of coverage to cover any specific risk of loss in the broader insurance marketplace."
Disclaimers are necessary in every proposal and communication regarding coverage. Attempting to address all possible coverage issues in the absence of a disclaimer creates a major problem when the agent is on the witness stand.
The best advice is, don't focus on one set of circumstances or loss exposure in any disclaimer. Make use of proper, well-worded, general disclaimers.
Last updated: July 21, 2020