DURING presidential election years, the great state of Iowa leaps to the headlines of every newspaper and the forefront of every political talk show. Iowa's election-season-opening caucuses and swing-state status lead politicians to make appearances throughout the state, munching Iowa corn and extolling Iowan ideals. It was during this election season that I recently sojourned to the Hawkeye state for a series of insurance seminars. Within just a few miles of me at any given time, Laura Bush, John Kerry, Tom Ridge and President Bush himself were making appearances and discussing a multitude of issues.
Of course, all politicians avoid directly addressing any controversial topic, no matter how crucial to the survival of the republic. One such issue arose during my trip. Seeing that none of the politicos was willing to take a stand and were fleeing instead to "feel-good" issues like Vietnam, Iraq, terrorism and the economy, I felt the responsibility to answer this burning question. Being the kind of guy I am, I took the bull by the horns, strode into the ring and fearlessly declared, "Hang the popularity polls, the buck stops here!" I speak, of course, about Business Auto Symbol 1.
The issue came up during a class break, when one attendee mentioned that using Symbol 1 for liability coverage on the ISO Business Auto Coverage Form (CA 00 01 10 01) was all well and good, but that an insured still must notify its carrier of newly acquired vehicles within 60 days, or there would be no coverage on the new autos.
I responded that while a carrier may hope for such notification, there is no such requirement. I agreed that for underwriting purposes, such a schedule was often required and desirable, both to understand the current liability exposure and to allow the carrier to develop the proper physical damage premiums. But once the policy has been issued, I continued, liability coverage is automatically provided for any newly acquired autos owned, hired or borrowed by the insured.
"Oh, but you are wrong," she insisted. "I talked with our general counsel about this very issue last week, and that is why I am sure I am right."
Perhaps if I hadn't suggested that even general counsels make mistakes, the issue would not have turned into a conflagration. I can't recall her exact words in response to my apparent easy dismissal of her legal leader, but let's just say it involved extensive use of the word "wrong" and complete loss of my credibility to be leading an insurance seminar.
As further evidence that her counsel was correct, she pounced on what seemed to be a weakness in my assertion. Did I mean to say that an insured could declare a single auto at the time of application, use a Symbol 1 for liability, acquire another 200 autos during the policy period, never report any of the new vehicles to the carrier, and the BAC still would provide liability coverage on all 201vehicles? Believing the best answers can often be short and sweet, I simply responded, "Yes."
You didn't have to have read a book on body language to get a clear interpretation of her reaction. Rolled eyes, exaggerated shaking of the head as if abandoning all hope of discovering an intelligent life form within my physical presence. So, just like Yoda had to prove the true power of the Force to a disbelieving Luke when that stupid plane sank in the mud, I realized it was time to act.
First, away with you to find a current copy of the BAC form. Go ahead and look-I'll wait…OK, here we go.
Section I, Coverage A, Description Of Covered Auto Designation Symbols begins: "Item Two of the Declarations shows the 'autos' that are covered 'autos' for each of your coverages. The following numerical symbols describe the 'autos' that may be covered 'autos.' The symbols entered next to a coverage on the Declarations designate the only 'autos' that are covered 'autos.'
Following that paragraph is the list of coverage symbols, with the definition for each. Here is the highly detailed definition of Symbol 1: "Any auto." Pretty hard to misinterpret that one, wouldn't you say? Note that it doesn't say "some autos," "listed autos," "those autos the underwriter feels like covering," or-key to our discussion in the class-"Only those autos covered in the opinion of the general counsel." The clear wording of the form states that, when using Symbol 1 for liability, "the only autos that are covered autos" will be "any auto."
Is there some form language that modifies or limits the application of Symbol 1? If you peruse the remainder of the form, the only such wording you will find is located in Section I, Paragraph B:
"Owned Autos You Acquire After The Policy Begins
"1. If Symbols 1, 2, 3, 4, 5 or 6 are entered next to a coverage in Item Two of the Declarations, then you have coverage for 'autos' that you acquire of the type described for the remainder of the policy period.
"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."
If an insured chooses Symbol 7 instead of Symbol 1 for liability, coverage for newly acquired autos would, indeed, be limited. This may be the source of the misunderstanding created by the general counsel, but even here the time limit is 30 days, not 60. But it is absolutely clear that by using Symbol 1 an insured will have liability coverage for newly acquired autos "for the remainder of the coverage period." No limitation, period.
As to her second question-how a carrier can get the proper premium for a risk-the answer appears a bit further into the BAC, specifically in Section IV, Business Auto Conditions-Premium Audit: "The estimated premium for this Coverage Form is based on the exposures you told us you would have when this policy began. We will compute the final premium due when we determine your actual exposures…."
Just as with the CGL, workers compensation or any auditable policy, a carrier has the right to determine the actual exposures during the policy period and then develop the proper premiums for providing coverage. In the example above, each of those 200 autos would be identified as to date of purchase, then the applicable liability premium for the number of days covered would be determined and billed to the insured.
In fairness to the attendee and her counsel, properly scheduling and reporting the autos as acquired would make determining the proper premiums cleaner and simpler. In many cases where physical damage coverage is desired or required by a lien holder, such reports will be made in the normal course of business. But that wasn't the question. Does using Symbol 1 provide automatic liability coverage on newly acquired vehicles during the policy period? Yes.
As we've discussed in previous articles, there can be a vast difference between what is desirable from an underwriting standpoint and what is actually required for coverage to be in effect. For agents, billing and underwriting can sometimes be awkward and time-consuming. But never forget where the rubber meets the road-when the claim is made. Don't let what someone wishes were true or desirable ever confuse you about what's real.
Even politicians get that one.
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