Take It Easy

Consider low-hanging fruit. How often do you hear that term used disparagingly by those who disdain what is evidently considered beneath the dignity of the truly ambitious or educated?

Yet one of the great joys of my early years was experiencing low-hanging fruit from the cherry tree that grew between our barn and house. When the fruit came in, we picked those limbs clean. I will testify that the easier fruit was just as good.

Still we have these pundits proclaiming the only worthy endeavor for true practitioners is reaching for those highest and most difficult boughs.

To such, I have but two replies: 1) I have never heard anyone stuffing themselves with cherry pie demand to know which precise branch level was the source. 2) This explains a multitude of E&O claims. 

Evidently many insurance practitioners are so focused on reaching into the higher branches of coverage—EPLI, D&O, contractual agreements, exculpatory clauses, ad infinitum—they fail to note that low-hanging fruit staring them right in the face. Amazingly, this continues despite every E&O statistic, seminar, best practice and procedure pointing out the vast majority of claims do not arise from complex, detailed situations but everyday procedures and oversights. 

For example, the No. 1 cause of E&O flood claims arises because the insured had no flood coverage. Perhaps that answer is just too easy for sophisticated practitioners of our art to grasp?

Related: Read another column by Chris Amrhein "Cross the Bridge."

And the E&O potential is not just theoretical. A church friend recently asked me to come by his house and review his commercial package policy. He is a successful businessperson, now retired, but retaining millions of dollars' worth of commercial buildings he holds for rent. Because he was dealing with a large and reputable local agency that had handled his account for years, I suspected my main duty would be to reassure him all was well. 

Wrong.

Within 5 minutes, I discovered at least two major errors that could not only cost him abundant grief, but expose his longtime agent to a significant potential E&O loss. After 10 minutes, my friend wanted to know my retainer to pore over all of his personal and business insurance at great length and depth. How quickly we had progressed from a casual conversation.

The true irony is, I may not find another error or oversight worthy of note. The depth of coverages I've reviewed so far indicate an experienced, highly qualified insurance agent. How could one so clearly skilled have made such obvious errors? The agent was so busy working those upper branches of sophisticated coverage that he sailed right past the low-hanging fruit. Now I come along, pluck those tasty ripe prizes hanging right here at eye level, and an insured with assets at risk and the ability to pay thinks I'm the greatest thing since cherries jubilee.

Let me illustrate with just one such finding and its implications.

The following language, while quoted from the ISO CP 00 10 06 07 form, is found with slight variation in every insurance policy:

Throughout this policy the words "you" and "your" refer to the Named Insured shown in the Declarations.

A short and simple sentence, perhaps deemed unworthy of more than a moment's thought by expert practitioners far more interested in the higher level issues. This may be why there is a plethora of profundity espoused at every seminar about additional insureds and their surrounding universe of related complexities, with little emphasis on ground-level considerations such as "named insured." Yet any contractor knows the most sophisticated architecture crashes to the ground without a sound and solid foundation.

Related: Read the article "Beautiful Brevity" by Chris Amrhein.

Another example: My friend's package policy has a generous amount of rents' coverage. At first glance, I'm impressed. Business income coverage of any type is one of the most overlooked and underinsured exposures in the commercial marketplace. His form is well chosen, the amounts accurately related to reality and the coinsurance percentage precise. In summary, the agent did well.

But now to the bad news. First, a few pertinent facts. The buildings are titled to an LLC. The rents are collected by a managing corporation, which takes a cut for performing its duties and then remits the remainder to the LLC. Obviously there are tax arrangements and legal issues reflected here, but none of that has any bearing on how the policy will pay, assuming the named insured properly reflects the legal reality. Insurance 101: To collect on a property policy, the insured must have an insurable interest in the loss. If I own a building and then sell it to you, but for some reason keep a building policy in force in my own name, the insurance company need have no fear. If the day should come when that building burns, upon presenting my claim under my fully paid-for policy, the response will be, "Sorry, dude, you don't own that building anymore. Because you have suffered no financial loss, no claim. Be sure to inquire about a refund of your premium. Have a nice day!"

So let us consider: What entity or entities must be named as insureds on my friend's commercial coverage if the full rents coverage is to be available for payment? The two entities with the insurable interest: the managing corporation and the LLC. Now guess who was named on the policy declarations? 

My friend.

That's right. According to the policy, my friend is operating as a sole proprietor and all pertinent properties are titled in his personal name. Net result? Thousands of dollars in annual premium, multiple hours in determining proper coverage forms, extensive labor over calculating adequate limits and proper coinsurance, all rendered useless by a single, glaring oversight. It's the insurance equivalent of constructing the finest state-of-the-art solar energy generating station on the dark side of the moon.

It is pointless to debate how the policy arrived at this awkward stage. Perhaps everything was once in his personal name, yet over the years legal changes were made of which the agent was unaware? Sorry, not here. According to my friend, the LLC has owned the building for years, and the agent regularly asked for updates to rents, lease agreements and other underwriting information. While mastering the minutiae, how could he have missed the obvious? And do I need to detail how this single and basic error now cascades down through the entire package policy for CGL, autos and commercial umbrella? Workers' compensation?

Our clients and prospects are like growing trees. They begin with a multitude of potential risk and protection needs, which growth, experience and success slowly turn from mere seeds to fully ripened opportunities for our valuable services and products. When you are given the trust and privilege of indulging in the harvest, take if from a lowly former cherry picker: Work from the bottom up. First, it guarantees the greatest bounty. Second, you won't leave yourself open to embarrassment or worse when someone supposedly far less skilled wanders by and points out to your client that overlooked low hanging fruit—a friend from church, perhaps?

When it comes to cherries, you want pie in your stomach, not on your face.