Insurance industry leader Jerry Milton, who is usually travelling coast to coast teaching insurance education classes, has a saying: “If you want to know what an insurance policy covers, look in the exclusions.” That’s an odd saying, right? Basically he’s telling us that if you want to know what you’re covered FOR, look in the part of the policy that tells you what you DON’T HAVE. While it sounds counterintuitive, this can be extremely helpful when trying to find out how far your coverage will go.
Recently our firm experienced this exact same scenario, but in two different instances. Both are good to take a look at because they’re dramatically different.
Our first scenario was a landlord that owned a building that was being used for student housing in a metropolitan area. In his error he neglected to tell his agent to add the newly purchased building to his property and general liability policies. Of course, he was reminded to add the building after a claim happened, which in this case was a passerby that tripped on a cracked sidewalk and hurt himself. The landlord was notified by the claimant’s attorney that they needed a large cash settlement.
The policy language on typical landlord policies will exclude property in the landlord’s care, custody, or control unless specifically scheduled on the declarations page of the policy. Notice I wrote PROPERTY, not LIABILITY, which is what the lawsuit was claiming against. After reviewing the landlord’s general liability, we found no such exclusion (care, custody, or control / not scheduled), thereby granting coverage to the landlord to defend himself in a court of law.
Our second scenario is a landlord that owned a 700+ acre farm. Roughly half of the acres were wooded, vacant land. However, the other half of the acres were farmable land, and were being used as such by a farmer who was leasing the land from the landlord. In this case there was no claim, but the landlord had brought the policy for us to market and analyze, which we did.
The general liability policy always uses 2 major pieces to rate a policy – a GL (general liability) code and an exposure amount. In this case, his expiring policy simply had the code for “vacant land” followed by 700 (or so) acres. However, it was our view that while this was partially true, the incumbent agent had neglected to add “leased land” to the general liability policy. It was our opinion that currently the prospective client had no coverage for leased land exposure. But the story doesn’t end there.
We turned to his expiring policy document and read through it, looking for a “classification limitation exclusion”. Boiled down, it amends the policy to read that if a claim occurs that is related to a practice other than what GL codes are listed there is no coverage. We found no such exclusion, which changes our opinion to having coverage, but not explicitly.
The entirety of an insurance policy is always good to glance at from time to time, especially by a trusted advisor, whether it is the one you work with explicitly or an outside party. While not all of it may make sense to you, be sure to read the exclusions – you’ll have a good idea of what you’re covered for.