Welcome to July, the heart of summer and home of Independence Day! But before you light up those illegal fireworks in the back yard, settle back with a glass of iced tea in your favorite hammock and dream with me about how much better our business would be if we declared independence from several thorns in our side.
?The CGL pollution exclusion. This well-meaning attempt to rid ourselves of potentially catastrophic claims arising from waste treatment dumps and/or chemical contaminants brazenly dumped in our rivers and streams by heartless, profit-mongering managers (thanks, Erin Brockovich) has gone terribly awry. We are repeatedly confronted with situations in which heartless, profit-mongering adjusters (or merely ignorant ones) wield this mighty sword to disallow claims arising from such potentially catastrophic pollution exposures as retail cleaning supplies, office-copier inks and toners, lawn mower gas cans and skunk attacks. And as creative attorneys find endless ways to work around the basic policy exclusion's somewhat convoluted language, many carriers respond by simply attaching the absolute exclusion endorsement with a shout of, "A pox on all your polluted houses!" (That this oath fails to take into consideration the communicable-disease exclusion is an obvious oversight.)
I humbly suggest two possible approaches that may free us from the black hole of claims disagreements. The first is to follow the commercial-property forms and simply provide the coverage, but only up to a specified limit. Doing so won't resolve the "what is and isn't a 'pollutant'" argument, but at least the coverage limit will be far more containable within non-catastrophic parameters. Then those who want higher limits can avail themselves of the supplemental pollution coverages marketplace. Another benefit of this measure is the creation of medical payments coverage for pollution claims, which will eliminate conflict over minor medical bills associated with copier-toner and cleaning- supply spillage claims.
A second approach is to specifically address all those "copier/gas can/ skunk" claims. Since the pollution exclusion intends to remove exposure to catastrophic claims, why not create coverage for non-catastrophic scenarios via a "quantity of pollutant" threshold before the exclusion applies? The commercial auto program already takes such a tack in its Motor Carrier Act provisions, so it is not without precedent. For example, if spilling a gallon of gas precipitates a claim, cover it. If a tanker truck overturns, ruptures and precipitates a claim, exclude it.
?Coinsurance. Does any evil lurking in the deep recesses of the property forms possess as much potential for violence as the coinsurance provisions? A vast amount of time and other resources have been devoted to understanding and teaching the intent, applicability and mechanics of this single provision-valuable hours that could have been spent on the pursuit of fruitful endeavors, such as saving your marriage.
"What are you are working on? Coinsurance examples for your property class tomorrow? That's it! I'm taking the kids and moving back in with mother!"
As regular readers of this column know, I'm dead set against retaining any insurance term that meets four key criteria: 1) It has little or no advantage, yet creates significant risk for failure to comply; 2) It can cause great emotional and financial pain to an insured; 3) It leads the insured to include his or her agent in said emotional and financial pain; and 4) It's a term few agents can adequately explain and even fewer insureds truly understand. Coinsurance easily meets all four requirements. And even if you fully grasp the concept as it applies to direct-damage forms, you will almost certainly throw your hands up in despair when you find the application of the exact same term is totally different in the business income and extra expense forms!
We should just move the entire issue off the insured and agent, and place it where it rightly belongs-underwriting! The original ISO businessowners policy had it right: Require adequate insurance to value, then let the claim be paid in full up to the policy limit. No, not every insured will be happy if the coverage limit turns out to be too low, but what else is new? At least the amount of coverage in force is clear and easily understood. We already use such an approach for health, life and auto insurance and for valued policies. Why not move all property forms into the current century and rid ourselves of this obsolete turkey?
One other possibility is to redefine "coinsurance" in the property forms so it has the same meaning as in health insurance forms. Let it represent the percentage of each claim the insured must pay. Insureds already are dealing with percentage deductibles in many states, so the concept of participating in a loss is catching on. Also, it is easy to explain and to understand in a "choice of coverages and limits" setting. No one can doubt that the higher the percentage of any claim an insured is willing to pay out of his or her own pocket, the lower the premium. Imagine, coinsurance actually making sense!
?"All-risk." Why can't our industry let go of concepts and terms we long ago admitted are inadequate, inferior or just plain misleading? Every E&O seminar worthy of the name includes a section on forever banning from the lexicon such terms as "full coverage," "guaranteed replacement cost," "blanket" and "all-risk." Yet we seem to be trapped, like Michael Corleone in "The Godfather, Part III," crying, "Just when I thought I was out, they pull me back in!" No matter how we try to rid ourselves of these misleading terms, we keep pulling them back into our conversations with one another and, worse yet, with our insureds.
Even those who should lead the way by modeling best behavior can't seem to escape the trap. Recently I was reviewing an updated draft for a leading insurance text and came across the following: "In formal documents the industry recently has avoided the term 'all risks' as carrying a connotation (particularly with the courts) that coverage is broader than intended. The term continues in general use, however, to differentiate from named perils forms, and its use is employed throughout this book (always in quotes to indicate it is a term not totally precise and unambiguous)."
Yes, you read that right. After clearly pointing out the problem, the text uses the term anyway. Can you say, "self-inflicted wound"? And I love the concept that putting the term in quotes somehow clarifies the issue. Have the authors forgotten that the CGL (and other) policy forms read, "Other words and phrases that appear in quotation marks have special meaning"? (And for that refer to the definitions section.)
On the contrary, it appears that the text cited above (and it is not the only authoritative text to take such an approach) wishes the reader to accept the premise that quotation marks carry a far different message: namely, any term within quotation marks is a lie. I can already picture the Monty Python sketch. "Psst. Hey buddy, how about some nice coverage? It's 'all risk,' if you catch my drift. Nudge, nudge, wink, wink, say no more!"
The time is long past to let this term slip quietly into that good night. If we are in such dire need for a replacement (I guess "special causes of loss" just isn't cutting it), maybe we need a contest to find it! I forthwith submit my entry: Named exclusion. What could be clearer? We have named peril. (If it's on the list, it's covered). Why not named exclusion? (If it's not on the list, it's covered). What, you think maybe that's too easy? "Up with easy!" I say. Imagine what you could do with all the time saved if the above provisions, and some similar ones, simply disappeared. I know what I'd do. My wife and I are dedicating the upcoming holiday to a 10-hours-plus Lord of the Rings view-a-thon. We're watching all three DVDs back-to-back.
So, as we approach Independence Day, let us form our own Fellowship of the Forms! Let us cast troublesome provisions into the fires of Mount Doom and be free forever! Last one to the Prancing Pony buys the iced tea!
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.