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Insurance 101: Your Insurance Policy — What Does it Really Mean?
Several months after renewing your insurance coverage each year, you can count on receiving one or more fat envelopes in the mail containing your insurance policies. How many of us actually pull them out of the envelope and thoroughly read them? I would guess a very small percentage. Those volumes of information that you store on a shelf or in a file cabinet represent a major contract you have entered into with your insurer and you need to know what it really means before something happens. You also need to know if you are over-insuring yourself. The reality of our economy has caused many of us to streamline or change our programs. Have you reviewed your policy lately to make sure that all the information is correct and current?
In order to understand what you are reading, you will need to learn a few basic concepts about insurance policies and the types of coverage. In order to help you do so, we will discuss some of the most common types of basic coverage.
Monoline or Package
A monoline policy is a policy that covers one type of insurance; for example, workers compensation or commercial auto are often written as single, or monoline, coverage. A package policy includes two or more lines of insurance coverage. A commercial package policy generally bundles property, crime, inland marine, general liability, and auto — or any combination of these — into one ‘packaged’ policy.
Most commercial insurance companies use rules and forms that have been developed by the Insurance Services Office (ISO). In both “mono” and package policies you will find*:
- Common Policy Declarations — Or your declaration page(s), which should include:
- Policy number, effective date, and expiration date
- Name of the insurance company and broker
- The premium for each coverage part included in the policy
- Common Policy Conditions — There are six common policy conditions and they are listed on a separate form. They include:
- Cancellation terms
- Changes — States that the policy constitutes the entire contract and that any changes must be made by means of an endorsement issued by the insurance company.
- Examination of your books and records — States the insur¬ance company has the right to audit your records.
- Inspections and surveys — The insurance company may inspect your property and operations during the term of the policy.
- Transfer rights and duties under the policy
- Coverage Parts — A mono policy will only have one coverage part, a package policy will have several coverage parts, one for each type of bundled coverage.
*These are very basic descriptions and not inclusive of all information.
Building and Personal Property (BPP) Coverage Form
There are basically nine sections on this coverage form:
- Covered Property — This will specifically list the covered property addresses if you have more than one physical location. It will also include a schedule (list) of all the covered buildings or structures and their values and may include square footage, type of construction, and other information.
- Property Not Covered — This section will tell you what property is not covered by the agreement. It is important to note that with the exception of illegal activities that are noted, you may often purchase insurance to cover these property items if needed or desired.
- Additional Coverages — Typically includes debris removal, preservation of property, fire department service charge, pollutant cleanup and removal, and increased cost of construction, among other additional coverages.
- Coverage Extensions — Typically includes newly acquired or constructed property, personal effects and property of others, valuable papers and records, cost of research, property off-premises, outdoor property, and non-owned detached trailers, among others.
- Limits of Coverage — The maximum amount the insurer is obligated to pay for a covered loss.
- Deductible — The amount that you chose to self-insure. The insurer pays amounts in excess of the deductible. Deductibles are per occurrence.
- Loss Conditions — Explains what the insured and insurer are responsible for when a loss occurs.
- Additional Conditions — These specifically deal with coinsurance and the interests of a mortgage holder.
- Optional Coverages — There are four optional modifications that can be made to the BPP; agreed value, inflation guard, replacement cost, and extension of replacement cost to personal property of others. These coverages apply only when notated on the declarations page.
You will want to read your BPP policy very closely to be sure that you have the coverage you need and desire. For example, are your buildings and structures covered at actual cash value or replacement cost value? If actual cash value, this means the loss will be valued at replacement cost less depreciation. Replacement cost value means that the building or structure will be replaced regardless of the cost up to the limit of insurance. At least once each year you should review your statement of values for your covered building and structures to be sure that the information is correct.
Business Income and Extra Expense
Business Income insurance helps to replace lost income related to a covered loss to the insured building or personal property. Extra expense insurance covers the cost of additional expenses incurred by a business to keep operating after a covered loss. This is an area where you will want to have direct discussions with your insurer or broker to determine the amount of insurance that you will need to purchase to satisfy any loss of income and potential extra expense exposures (such as having to hire an onsite caterer due to a loss at the dining hall right before camp season). It is also a coverage that you will want to be sure to review at least every few years or if substantial changes occur in your program, camper capacity, or budgeted income.
The Business Auto Coverage form has five sections: Covered Autos, Liability Coverage, Physical Damage Coverage, Business Auto Conditions, and Definitions. As with the BPP, your automobile coverage will have a declarations page and schedule which will state much of the same information. If you have a large fleet, you will want to carefully check your schedule each year to be sure that you have included all of your vehicles and trailers and that you have removed any that you no longer own. If available, you can ask your broker to secure “any auto” coverage to ensure that unintentional oversights do not leave the camp uninsured for failing to add a vehicle to the policy.
Some commercial auto policies have both a minimum and maximum acceptable age of drivers. It is very important that you are aware of these limitations and follow them.
You will also want to make sure that your policy covers both owned and non-owned vehicles, and if you use volunteers, that your volunteers are covered as employees.
Boiler and Machinery or Equipment Breakdown
This coverage applies to any type of equipment that operates under pressure (such as the steamer in your kitchen or the boiler that runs your HVAC). Additionally, many large commercial hot water heaters and refrigeration units fall under this classification. Usually these types of equipment require annual inspections by both the state and your insurer.
Crime and Fidelity
The ISO Commercial Crime program contains two basic forms, the Discovery form — covering losses that you discover during the policy period even if they occurred before the policy period; and the Loss Sustained form — covering losses which occur during the policy period and which are reported within twelve months of the policy expiration date. There are seven basic crime insuring agreements. The insured chooses which they would like coverage on and the amounts of coverage. They include:
- Employee Theft — Covers theft of the employer’s property, including money, by an employee.
- Forgery or Altercation — Covers a loss resulting from forgery of checks, promissory notes, and other financial instruments.
- Inside the Premises: Theft of Money and Securities — Covers the theft, disappearance, and destruction of cash and securities on the insured premises.
- Inside the Premises: Robbery or Safe Burglary of Other Property — Coverage for money and securities on the premises.
- Outside the Premises — Covers theft, disappearance, and destruction of money and securities while in the possession of a messenger for the insured.
- Computer Fraud — Coverage for the use of a computer to transfer money fraudulently.
- Money Orders and Counterfeit Paper Currency — Covers loss due to good faith acceptance of money orders and counterfeit money.
You will want to talk to your insurer or broker about how many securities are handled and any special circumstances so that you can be sure to purchase the coverage that you need.
Inland Marine coverage is generally used to cover items that can be moved from one location to another. This would include farm equipment and trailers, boats, computer equipment, audio visual equipment, grounds keeping equipment, cameras and other recording devices, sports equipment, etc.
The deductible for items covered under an Inland Marine policy is generally $500 or less. You are generally required to cre¬ate a schedule of all items with a value that exceeds $5,000; all other items are usually bundled together in groups and given an aggregate value.
This policy covers many of the types of losses that may result from negligence related to Premises (such as losses due to trips or falls), Products (such as losses due to distribution of defective products), and Operations (such as losses due to employee error).
The Commercial General Liability (CGL) policy provides three separate coverages:
- Coverage A: Bodily Injury and Property Damage Liability — Provides the insured with the promise to pay damages on behalf of the insured and to defend the insured against claims and suits resulting from any covered peril that causes bodily injury or property damage.
- Coverage B: Personal and Advertising Injury Liability — Provides the insured with the promise to pay damages on behalf of the insured and to defend the insured against claims and suits resulting from any covered peril that causes personal injury or advertising injury.
- Coverage C: Medical Payments — Provides payment of medical claims that are brought against the insured, including minimal payment of settlements to bring quick closure to a claim without the necessity of proving negligence on the part of the insured.
It is very important that your insurer and broker understand your business and how you operate. You will want to be very forthright about programs and activities that you offer to be sure that you are covered for any losses that may occur.
Overview of Key Messages
- Read through the details of your insurance policies.
- At least once each year, review your statement of values for your covered building and structures to be sure that the information is correct.
- Have direct discussions with your insurer or broker to determine the amount of insurance that you will need to purchase to satisfy any loss of income and potential extra expense exposures.
- Make sure that your policy covers both owned and non-owned vehicles, and if you use volunteers, that your volunteers are covered as employees.
- Talk to your insurer or broker about how many securities are handled and any special circumstances so that you can be sure to purchase the coverage that you need.
- Be very forthright with your insurer about programs and activities that you offer to be sure that you are covered for any losses that may occur.
The information provided in this article is intended to be a starting point to help you understand some of the insurance coverage that you may have contracted, but should not be viewed as wholly inclusive of all information that is needed to make informed decisions about coverage. You should discuss all aspects of your operations with your insurer to be sure that you have the coverage that you need and desire.
Other types of coverage that you should consider include:
- Umbrella Liability
- Professional Liability
- Directors and Officers (D&O)
- Cyber Insurance
- Camper Cancellation Insurance
Questions related to your individual insurance coverage should be directed to your broker or agent. However, if you just have a question or concern that you would like to talk about with an impartial party, feel free to contact one of the members of ACA’s Insurance Committee and we would be glad to listen. For the contact information of the entire committee, please visit www.ACAcamps.org/volunteers/insurance. You can also find the listing of ACA partners and business affiliates in the insurance industry and other helpful risk management and insurance information at www.ACAcamps.org.
Gaetana De Angelo is the facility operations and risk manager for Girl Scouts of Greater Atlanta and serves as chair of the ACA Insurance Committee. She is a standards instructor and visitor. De Angelo attended Georgia State University with BBA’s in Risk Management & Insurance and Hospitality Administration. She can be reached at firstname.lastname@example.org.