There is a great holiday commercial that is making the rounds again and it shows a man who wakes up and he is covered in wrapping paper. In fact, as it goes on you see everything in his life in wrapping paper: his kids, wife, car, and all of the blessing he has in his life. The message is one that truly hits home this time of year. We don’t really need gifts and we should appreciate what we have in our lives. It also reminds us that we need to protect our property and give thanks.

For this post, I wanted to share some advice concerning property insurance from the Policyholder’s Guide to the Law of Insurance Coverage, because protecting what you already own with insurance is a safeguard but it is important to be do an annual review. This is a great reminder for business owners and homeowners:

  • Binders. Policyholders sometimes do not receive the policy until weeks or months after it is to take effect. In the meantime, the policyholder should make sure that it has a “binder” or “covernote” referring specifically to the precise financial and coverage terms of the insurance the policyholder has purchased.
  • Reviewing Policy Documents. The policyholder should review all policy documents carefully. It is not uncommon for the insurer or broker to make “mistakes” in compiling the policy documents.
    • Read and Understand if you have Ordinance and Law Coverage
    • Read and Understand if you have Business Interruption Coverage
    • Read and Understand if you have water damage exclusions and ask questions
    • Look for coverage for wind damage
    • Understand special deductibles
    • Buy a flood policy even if you don’t live in a flood zone
  • Retaining Policy Documents. “Old” policies should not be discarded. They can be worth thousands or millions of dollars; some companies have recovered hundreds of millions of dollars under policies that are 30, 40, or even 50 years old. (This can also be helpful information and evidence if policy terms are changed without proper notice)
  • Cancellation Clauses. As noted above, many policies contain clauses that insurers will argue permit them to cancel a policy for whatever reason. Such a clause may give an insurer great leverage in inserting an exclusion into the policy in the middle of the policy term. Policyholders should consider resisting such a cancellation clause and insisting on a clause that allows cancellation only for non-payment of premium. Even if such an effort is unsuccessful, many states have statutes or regulations that, the policyholder may argue, prevent an insurer from canceling except in certain limited circumstances. Also, policyholders should be aware that insurers may contend that statutes in certain states grant the insurer the right to refuse to renew multi-year policies at certain anniversary dates.
  • Following Form. Many insurance programs have “layers” of coverage whose terms are said to “follow form” to one another, thereby supposedly ensuring that claims will be treated in the same way by the different layers of coverage. Many “following form” policies, however, have their own “unique terms” that may undercut the goal of consistency. Policyholders should consider negotiating a provision clarifying that the coverage provided by an excess policy is at least “as broad as” the underlying policy whose form it follows.1

Take the time this week to set an appointment and reminder to find and review all your insurance policies. Now is a great time to review your coverage and ask questions before we blink and it is the new year.
1 Policyholder’s Guide to the Law of Insurance Coverage, Kalis, Reiter and Segerdahl, § 19.09,GENERAL CHECKLIST, Wolters Kluwer.