Stand
Alone Policy or Endorsement?
by Curtis M. Pearsall, CPCU, CPIA
Special Consultant to the Utica National E&O Program
As spring approaches (even in Utica), many of your customers are going to be stopping in to have you insure their toys, whether new or old. Whether that toy is an ATV, boat, or camper, insurance is needed for both liability and physical damage.
When one of your customers stops in for insurance, are you going to add the exposure to the auto or homeowners policy (based on the exposure) or are you going to recommend a separate policy? In probably all circumstances, there is a premium difference and in some cases it may be substantial. The fact that there is a premium difference should imply that there is a significant difference in the coverage being afforded based on which approach you pursue. Let's take a minute and look at some of the differences. These may vary based on the carrier used, so a comparison involving your markets is needed.
Take
an ATV exposure. This would either be covered by a separate
policy or by the homeowners policy. In virtually all of the areas,
liability or physical damage, a separate policy is broader. In
the case of liability, you can buy what limit you want on a separate
policy. When the ATV is insured on the homeowners policy, the homeowners
limit will apply. Also, the scope of coverage is broader on the
separate policy, which covers recreational use on or away from
the insured's residence. An endorsement in many cases only covers
losses if the ATV is used solely to service the insured's residence.
Injuries do occur on ATV's, so the issue of medical payments needs
to be factored in. On a separate policy limits are normally available
up to $10,000. On an endorsement, the limit is on the homeowners
policy and only at the insured's residence. Uninsured/Underinsured
Motorist coverage is available on a separate policy; it is not
part of a homeowners form. Coverage for
customization of the ATV is also broader on a separate policy.
Now
that we have covered a common land exposure, let's turn to the
water. Is there a big difference between a separate
policy and an endorsement to the homeowners policy? Homeowners
policies have limitations on size and horsepower (normally 26'
in length and 25 horsepower). Stand alone policies are written
based on the actual exposure so a watercraft 50' in length with
a 500 horsepower single engine, valued at $250,000, is definitely
more appropriately insured on a separate policy. Medical payments
is available on a separate policy, but not on most homeowners policies.
Separate policies offer more options for the valuation for physical
damage (homeowners policies are usually only available on an
ACV basis). Also, separate coverages such as fuel spill liability,
wreckage removal, roadside assistance, and on-water towing are
not part of too many homeowners policies. So
with watercraft as with the ATV, while separate policies carry
a higher premium, the coverage is much, much broader.
From an E&O perspective, do I suggest the separate policy? Definitely! For the 20+ years that I have been involved in the E&O program, the #1 cause of claims is failure to provide the proper coverage. What would happen if you insured a boat for one of your customers on a homeowners policy and they had a fuel spill loss? When the carrier denies the claim, there is the potential that your customer might bring some type of action against your agency for failure to provide the proper coverage.
If you advise your customer of the significant differences between a separate policy and an endorsement and they select the endorsement, it may be okay on one condition. Document that you explained the differences and also have the customer sign a statement for your file that the differences were explained. If you don't do that, you have a potential E&O nightmare on your hands.
The summer is a season to be enjoyed. Let's make it enjoyable by doing the right thing for your customers and your agency.
Communiqué is published for our agent-customers for informational purposes only and is not intended to be, nor should it be relied upon as legal advice. Legal questions should be directed to your legal advisor.