April rings in the glorious season of spring--out with the old and frozen, in with warmth and the newness of rebirth. But the month of flowers is also famed as the month of fools. I'll let you decide which is most appropriate to describe this recent question from the mailbag.
Alert reader Randy writes:
I have a client who currently has a Symbol 1 on his commercial auto policy (two pickups, semitractor and two trailers). The insured feels the premium on the semitractor is high, given the limited usage of this unit. The insured could remove coverage from this unit for the 6-month period that it is not in use; however, the insurance company would then change the Symbol 1 to Symbol 7.
Symbols 8 and 9 would then be picked up by a commercial general liability plus endorsement, which gives hired and non-owned auto as well as higher med pay ($10,000 versus $5,000) and fire legal coverage ($300,000 versus $50,000) on the GL policy. The higher med pay and fire legal is appealing to the client. The savings for making this change is roughly 25 percent. The limits on the GL and CA are the same.
All of the classes that I have taken say never give up a Symbol 1 for Symbols 7, 8 or 9. Obviously, one of the biggest exposures to making this change is the lack of liability coverage on the semitractor when it is in "storage." Besides this potential gap, are there other common situations (examples) where Symbol 1 outshines Symbols 7, 8 or 9?
An excellent question from the standpoint of the insured, particularly that 25 percent savings. Why pay for coverage you don't need? The carrier is more than willing to remove the coverage as desired. All it asks in return is what appears to be a mere mechanical choice--change the symbol for liability coverage from a "1" to a "7". And isn't this the perfect risk for a Symbol 7: small, limited number of vehicles overall, and a motivated insured with a coverage request affecting only a single vehicle? Right out of the textbook!
Unfortunately for this seemingly obvious answer, I happen to be one of those instructors Randy mentions who, when it comes to auto liability coverage, advise agents to hold onto Symbol 1 for dear life. (Nothing personal against the other symbols, you understand. Under certain circumstances, even I have indulged a Symbol 2, but only on special occasions and with the usage of proper safety restraints.) The key reason I favor Symbol 1 is simple: while everyone knows that for liability, there is no better protection for the insured, what far too many seem to overlook is it is also the absolute best choice for protecting the agent.
Randy already did a great job explaining how this looks to the client. His mission is how to explain to the client--and evidently the carrier underwriter--why this seemingly simple change has the potential to wreak extraordinary havoc. Let's consider what happens to the ISO business auto policy when a 1 is changed to a 7, along with its implications for both the insured and agent.
The most obvious gap is the loss of all the automatic coverage for any vehicles the insured takes ownership of during the policy term. And that may matter more to the agent (who from this point on I'll call "you") than the insured (who will henceforth be known as "he"), because few insureds will understand all the reporting issues they just created for you.
For example, what if he decides to purchase a new vehicle, or suddenly starts driving the semi again when he lands a contract, or just decides he needs it for a quick run? Instead of the liability automatically kicking in, he is going to have to notify you to specifically add that coverage back on prior to his operations. While there might appear to be an automatic window of coverage, here is the key form provision (ISO BAC):
2. But, if Symbol 7 is entered next to a coverage in Item Two of the Declarations, an "auto" you acquire will be a covered "auto" for that coverage only if:
a. We already cover all "autos" that you own for that coverage or it replaces an "auto" you previously owned that had that coverage; and
b. You tell us within 30 days after you acquire it that you want us to cover it for that coverage.
Notice the impact of this wording goes far beyond the intended affect for Randy's client--no liability coverage on the semi during the 6 months, for good or ill.
First, the obvious one: If he doesn't report any new vehicle within 30 days, no coverage from date of purchase.
Second, a less obvious one: The 30-day window to report the new vehicle to you only applies if you already insure under this policy all other autos he owns. Note that if he is a sole proprietor, this can be a huge problem, because that would include any personal vehicles titled in his own name, even if they are on a PAP. There is no exception in 2.a--it's all or nothing. Third, because he already owns the semi, the 30-day period never applies to it because it is not an auto "you acquire." So if he wants to use that vehicle at any time, he must immediately notify you prior to use and you must add it back to the policy, or no coverage. Note this applies even if you keep other coverage on the truck during the 6 months, because the automatic provision only applies if the BAC already covers all autos "for that coverage"--the one you want to add. If there is no liability on all owned vehicles (including his semi), then there is no automatic liability coverage for that semi when he starts driving it again.
Fourth, however, is the real potential killer. Because he owns the semitrailer, you just violated 2.a. Basically, he (the named insured, regardless of the legal entity) already owns a vehicle you don't cover for liability under this policy, so with Symbol 7 there is now no automatic liability coverage on anything, period. For coverage on any new vehicle, or reactivating coverage for the semi, he absolutely must notify you prior to using such vehicle and you must immediately and specifically add it to his policy, or
no coverage.
You can see why I say this is actually more of a burden on you. He may fail to notify you, plan to notify you, or actually notify you, but in all cases unless that semi (or other acquired vehicle, but I'm going to assume he'll tell you he has no plans to buy anything new, so let's stick to the semi) is specifically added to the policy prior to a liability claim, the carrier can walk away. And guess who is going to get blamed--you.
That is really the main reason I stress the value of Symbol 1, even over a combination that is far superior to yours: 2 + 8 + 9. The automatic coverage for "any auto" is also automatic "E&O" coverage for the agency from any errors or mere slip-ups that would otherwise end in an insured discovering at time of loss he has no liability coverage for that vehicle. Symbol 7 puts 100 percent of that processing burden squarely back on you. You might ask, if this symbol is so potentially egregious, why did the underwriter tell the agent this was the proper coverage path? I would like to assume the underwriter was simply unaware of the implications, but there is a more likely answer. Carriers have no problem at all loving Symbol 7, because they are now off the hook for any owned vehicle not specified on the policy. Whether you or the insured dropped the ball is of no issue to them.
Randy introduced one other consideration into the mix. That CGL Plus endorsement sounds pretty good. If you have such options available, feel free to consider whether other possibilities exist to provide the insured his desired coverage while still minimizing potential risk for you. For example, is it possible you could talk to the carrier about some modification that would eliminate the need for the Symbol 7 (such as some manuscript wording using the CA 99 54) while still gaining the benefits of the Plus endorsement?
While there may be some other more subtle potential gaps (some argue about vicarious liability issues, but I think the CGL will step in for those), these are the key BAC issues that could turn seeming flowers (more coverage for less!) into the cruelest of April fools (confusion and complexity leading to higher risk for both insured and agent).
So this April, let a thousand flowers bloom--but first, weed out the fools!
