Agent Blunder Might Have RemovedSenior Citizen Center's Security Blanket

When a Cincinnati Reds player hits a bases-loaded home run, Marty Brennaman–the Reds radio announcer and a member of baseballs Hall of Fame–proclaims: “Get out the mustard and the rye bread, Grandma! Its a grand salami!” I was recently presented with a “grand salami” of policy misinterpretation.

This time its an insurers misunderstanding of a blanket limit on a commercial property policy. This case involves a senior citizen condominium complex in Miami. A really nice part of this condo complex (and one to which part of the fee goes each month) is the recreation building–a place with meeting rooms, a small bar, a TV area, some game tables, etc.

The recreation building was recently destroyed by a fire and the insurer is apparently balking at proper settlement under the commercial property policy.

The agent, however, is not without blame. He has written the condo in a very strange manner. He got the coinsurance clause removed; he did not add agreed value coverage to the buildings.

Blanket coverage on buildings should always be written with an agreed amount and no coinsurance. The reason for buying blanket coverage–and the reason that it is more expensive–is that the insured has the true peace of mind that any loss is covered up to the blanket limit of liability.

It appears that the loss will probably come in just barely less than the $5 million limit of liability. The $5 million loss consists of direct damage, debris removal expense and code upgrades.

The declarations page shows a limit of $5 million applying to the condo complex located at XXX address. Attached to the application is the “statement of values” that shows an amount next to each insured building. These amounts are what the agent says is each buildings value–they do not represent the amount of insurance on each building.

The purpose of the statement of values is to help the underwriter price the risk and to be sure that the company knows of all buildings to which it is exposed.

The ISO Statement of Values form is form CP 16 15. The first page contains the identifying information–insured, address, coverages, etc. The second is where the individual properties to be insured are listed. That page even says across the top: “Average Rate Calculation.” Nowhere does it mention “limit of liability.” It simply says “values.”

The declarations page of this condo policy does not say “per schedule on file with company.” If the agent wanted to make it a “schedule policy” he would have put this wording on the declarations and omitted the limit of liability. He would also have called his attached list a “schedule,” not a “statement of values.”

On this particular statement of values, the agent has entered $860,000 as the value of the recreation building. As it turns out, that figure is monumentally too low, but that is not the insureds fault. It is a second goof made by the agent. How could he issue a statement of values showing a value that was so far off from reality?

However, the insurer is saying that $860,000 is all thats available to the condo owners for the damage to their recreation building. The insurer is adamant that the “statement of values” is really a schedule.

A blanket policy means that one amount is available for any one loss. In this case, the entire $5 million is available for the loss to the recreation building. If the entire complex had burned, then the $5 million would be spread out among all the buildings.

One of the main reasons for buying blanket coverage–at a higher rate than scheduled coverage–is for the peace of mind that any loss will be covered up to that amount. It should remove the possibility of being underinsured.

As I see it, the only way that this insurer would be justified in adjusting the claim in the way it has chosen would be if the policy was rated as schedule policy, instead of a blanket. While I was not privy to that information, from what I saw, that was not the case. And, as I said earlier, if it were supposed to be a schedule policy, the declarations page would have said “per schedule on file.”

Michael K. McCracken is associate editor of the FC&S Bulletins, published by the National Underwriter Company in Erlanger, Ky. He may be reached via phone at 859-692-2228; fax at 859-692-2223, or e-mail at mmccracken@nuco.com.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 22, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Agent Blunder Might Have Removed Senior Citizen Center's Security Blanket

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