This is the title of an article of mine published in the Tennessee Bar Journal and a subsequent Bar Association webcast. With the permission of the TBA, I would like to share with you in the next few newsletters. This continues the list of ten (10) items.
Having invested over a half century of my professional career in the Property and Casualty insurance business, the last decade being involved as a consultant and expert witness, I feel an urgency to mention a few areas that can be of help to attorneys.
- Do insurance agents have binding authority from their companies? Contrary to popular understanding, all insurance agents do not have authority to bind all coverages, verbally or in writing, for companies with which they might place business. The “direct writers” (such as State Farm Insurance Company) generally have agents who are employed by their company and are given guidelines as to coverage that they can and cannot accept on behalf of their company. In contrast, “independent” agents typically represent many insurance companies and have a contract with each company specifying what and when coverage can be bound. Of course when a coverage is legitimately bound by an agent, that coverage is the responsibility of the appropriate insurance carrier.
Many agents have contacts with “Excess and Surplus Lines” insurance carriers (such as Lloyds of London) which are normally not licensed by state Insurance Departments, but are on lists of Approved Non-Admitted Carriers. Usually the more difficult business to place is with these carriers. Normally agents do not have authority to bind these carriers, without prior approval. Typically, the local, independent agents have access to the “excess and surplus lines” carriers via a “broker” or “managing general agency” for that non-admitted carrier. This “middle-man” set-up sometimes makes it confusing in establishing fault when an obvious error has been made in the process of providing insurance coverage.
- What difference does co-insurance make when settling a claim? Most property losses are not “total” losses. To encourage an insured to purchase an amount of insurance that approaches total value, most property insurance policies are written with a co-insurance percentage. The insured has a lower premium for this provision. This means that, at the time of a loss, should an amount of insurance not equal the percentage shown times the value of the property, the corresponding adjustment is made in the claim settlement. Thus, the insured becomes a “co-insurer.” This subject is often poorly understood. Sadly, many insurance agents do not understand the consequences.
- What are excess insurance policies? Especially with today’s ever-increasing need for higher limits of insurance coverage, many insurance carriers (along with their reinsurers) are unable to provide adequate limits. To fill this gap, other companies offer “excess” insurance coverage, making available higher and higher limits, sometimes in multiple layers. Unfortunately, not all “excess” policies “follow form,” that is provide the same coverage as the primary/underlying policy. This offers a special challenge to the insured and their agent and/or broker.
TO BE CONTINUED…
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Note: Information in these blogs is not intended to replace any legal or financial professional information.