Not many people read their insurance policies until it’s time for a claim. If they did, an unsuspecting reader might take comfort in long, detailed listings of who is entitled to coverage under a policy and what types of property and losses are covered.
Looks can be deceiving, however. Long lists of who and what is covered can actually serve to limit coverage rather than extend it. Policyholders are often better served by shorter, broader provisions.
Regarding whom is entitled to coverage under a policy, a policyholder will want to know if the definition of insured is broad enough and flexible enough to support an enterprise that acquires, merges with, aligns with, or shares resources with other organizations in pursuit of its business objectives.
For example, if the definition of insured lists subsidiaries and owned affiliates of the named insured but does not extend to joint ventures with other organizations, the named insured’s losses in a joint venture may not be covered.
As for property insured under a policy, a long list of covered property may effectively exclude coverage for property not on the list. Again, some organizations may want a shorter, broader definition that encompasses more types of covered property and “anticipates the unanticipated” in situations where property is shared or transferred.
Of course, you may have to pay more for less in terms of policy provisions. Short, broad definitions of insureds and covered property will cost more premium than longer but more restrictive definitions.
Also, the more entities and property are eligible for coverage, the greater the possibility that limits will be inadequate for potential losses, and the greater the chance that loss settlements will be subject to coinsurance penalties.
Insureds who manage to secure short, broad definitions of insureds and covered property face a stiff challenge in establishing and maintaining up-to-date values of the property at risk, and the premium necessary to insure them.
To learn more about what property owners can do to attain and support broad definitions of coverage, see the edition of Adjusting Today titled “Sometimes It’s What the Policy Doesn’t Say That Counts!”