Mechelsen, Inc. Risk Management Forum

Claim Horror Story: Golf carts

Claim Horror Story:  Golf carts not where they're supposed to be.

More common at the seasonal residences of our clients in California and Arizona, living in a community where most residents commute through the neighborhood in their golf carts sounds like a lot of fun.  Getting to the clubhouse, a neighbor's house for bridge, or taking the dog for a "walk", taking a golf cart while inside a gated residence community makes a lot more sense than driving a car.  But beware, because losses that occur while in/on the golf cart may not be covered by an underlying insurance policy!

Case in point:  Two octogenarians living in a golf community traveled down the street to a friend's house where a summer night's party was held.  After some cocktails another friend asked if they would give him a ride home on the back of their golf cart.  Trying to stand on the back of the golf cart, the friend lost his grip and balance as the golf cart went over a speed bump and he fell, fracturing his hip and sustaining a severe head injury.

The insurance company who provided the home insurance for the operator of the golf cart had recently made a change to their policy's language concerning the exclusion related to operating a golf cart (a change made, not insignificantly, to better match similar changes in competitors' policies).  Because of this change, what may have been considered "covered" just a few months before the accident was denied because of the policy language that was changed at renewal.  The sad result of this claim was that none of the costs of the loss was covered by the insurance policy of the golf-cart operator (who was found partially at-fault for the accident).

There are two points to make.  The first, remember that policy language is not necessarily static from term to term.  There are constantly-changing coverages, exclusions, and conditions.  In fact, when the above-referenced policy change was made there were other changes made to the home insurance policy and the document written to outline the scope and rationale of the changes totalled 700 pages (for a 27-page policy)!  Do not think that what was covered yesterday is necessarily covered today and commit to having regular insurance reviews completed for your client.  The second, if your client owns a golf cart, discuss with your client's insurance agent any concerns regarding insurance policy coverage. 

Mechelsen, Inc.                  Darren McGraw, MBA, CIC                  mechelseninc.com

Red Flag: Kids At Home With Their Own Auto Insurance

Red Flag:  Kids At Home With Their Own Auto Insurance

Many clients come to us trying to justify their decision to put a car and separate insurance policy in the name of their living-at-home child saying, "this way we won't be responsible if a bad car accident happens."  Actually...

If you have any client that has a child living at home with their own insurance policy, make fixing this potentially monumental problem a top priority!  I won't bore you with a full dissertation on the reasons why, but it's sufficient to say here that many, many gaps in insurance coverage can exist under a situation like this.  In addition, many more opportunities exist to "lose control" over keeping limits of liability high enough, paying the premium, controlling the underwriting, etc. when a policy is written in the name of a child. 

If you have any clients with multiple auto insurance policies in one household that should be the tip-off to talk to an insurance expert asap to make sure that if there are existing gaps in coverage, they are filled right away.  And if you do want to bored with the full dissertation on all the reasons there are problems with this scenario, I'll be happy to comply with your request. 

Mechelsen, Inc.               Darren McGraw, MBA, CIC                mechelseninc.com

Insurance Premiums: What Other Structure?

Insurance Premiums:  Reduce Coverage for Other Structures If There Aren't Any.

Most standard home insurance policies provide a separate limit of coverage for losses to structures on the residence property that are not premanently attached to the Dwelling.  Normally granted as 10% of the Dwelling limit, this limit can pay for covered losses to fences, sheds, gazebos, detached garages, etc. 

But if your client doesn't have any detached structures, see if the amount of coverage for Other Structures on their home insurance policy can be reduced in exchange for a premium credit.  Be careful not to leave your client underinsured, of course, but if your client's home is insured for $750,000 and they don't have any detached structure on the property, reducing the standard $75,000 limit for Other Structures to something that is more appropriate makes a lot of sense because it saves money on wasted premium that can be better allocated toward increasing liability limits, raising the Dwelling limit, or something more relevant.

Mechelsen, Inc.                 Darren McGraw, MBA, CIC                mechelseninc.com

Claim Horror Story: Car Clubs & Race Tracks

Claim Horror Story:  "I wasn't racing, I was just going really, really fast"

Most auto insurance policies specifically exclude any coverage for participating in an organized racing event.  But what is often misunderstood is that many policies expand on this to also exclude the more common occurrence of sports-car-clubs meeting at a racetrack to enjoy taking their cars to the track as a hobby.

Case in point:  An owner of a Porsche 911 met the rest of his Porsche Club at a local speedway.  The members were allowed to take their street-legal Porsches onto the track and "open it up" on the course.  No prizes, no organization, no timing, etc, just a group of car enthusiasts free to go as fast as they could.

Unfortunately, the Porsche 911 got too wide on a turn, clipped another car, and flipped it several times.  The driver of the other car was ejected from his vehicle and was paralyzed from the waist down.  The at-fault driver's claim for liability coverage and defense was denied and the entire settlement with the other driver was paid out of the at-fault driver's liquidated investment savings.

No two policies are the same and the specific language pertaining to this (and all) exclusions is a critical detail.  Where some may find the wording of one company's exclusion to be vague, other insurance policies are extremely specific.  In this case, the at-fault driver's policy was extremely specific as to exclude anything that had anything to do with driving, riding, or being at a racetrack for any reason.

The lesson:  Know what your client enjoys doing as a hobby and make sure the insurance agent is made aware of it so there can either be a discussion concerning the known exclusions, or to try and find acceptable coverage (if available).

Mechelsen, Inc.                  Darren McGraw, MBA, CIC                  mechelseninc.com

Red Flag: Remodelling

Red Flag:  Report $5K to get 25%

Many home insurance policies grant a "cushion" of insurance over-and-above the Dwelling limit.  This extra amount is usually defined as a percentage of the Dwelling limit, like 25%.  So if your client has a Dwelling limit on their home insurance policy of $100, the extra cushion might actually provide up to $125 after a loss even though the stated limit is $100.

It's really hard to pinpoint what the post-loss reconstruction cost of a house might be without actually having a loss, so the added cushion is a blessed "fudge factor" in the event that construction costs creep over the limit on the policy.  These common endorsements are called different things by different insurance companies, but most do not charge any premium for them if the client and their home qualify.

But like with most insurance-policy coverages there are conditions and exclusions.  One of the least-known conditions of these extended dwelling cost "cushions" is a requirement that the client notify their insurance company before they begin any project which adds $5,000 or more to the projected reconstruction cost of the home.  If the project is not reported, the entire "cushion" may be voided after a loss and then your client better hope that they picked the right Dwelling limit on their home or they will be underinsured!

Each insurance company has different coverages and conditions, but keep "Report $5K to Get 25%" in mind whenever your client talks to you about a remodeling project and involve their insurance agent right away.

Mechelsen, Inc.               Darren McGraw, MBA, CIC               mechelseninc.com

Claim Horror Story: Home Insurance Liability Limits

Claim Horror Story:  Home insurance liability limits aren't just for the home!

A lot of people are careful about their liability exposures at home.  They manage the risks of slip & falls, dog bites, and falling trees by being good maintenance people, good neighbors, etc.  All of that is good, but don't forget that negligence and liability exposures exist away from the home, too!

Case in point:  A Saturday golfer teed up his first shot of the day and sliced it over the trees, into the adjacent fairway, and into the cheekbone of another golfer.  The injured golfer suffered a blowout fracture of the orbital bone and eventually lost his eye.  The injured golfer just happened to be a dentist who kind of needed both of his eyes to do his job well.  The result was a settlement over $800,000.  Fortunately, the at-fault golfer carried a $500,000 limit of liability on his home insurance and a $2,000,000 personal umbrella policy so the entire settlement (including defense costs) was paid for by his insurance company.

Be sure your clients understand that the liability limit on their home insurance policy isn't just for liability exposures on their premises, and be sure that the limit selected on the home insurance policy meets the underlying limit required by the umbrella.

Mechelsen, Inc.                 Darren McGraw, MBA, CIC                mechelseninc.com

Insurance Premiums: The best $18 ever spent

Insurance Premiums:  The best $18 ever spent...personal liability coverage.

What's the difference between $100,000 and $500,000?  $18.  That's the premium difference between those two personal liability limits on most home insurance policies.  To us, the trade of a client's $18 in exchange for the $400,000 increase in net worth protection is the best deal to be found in the indsurance marketplace.

Mechelsen, Inc.               Darren McGraw, MBA, CIC               mechelseninc.com

Red Flag: Company cars

Red Flag:  Company cars & gaps in auto liability coverage.

If your client is a custodian (i.e. regular operator) of a company-owned car, there's a chance they  face the possibility of having no insurance coverage for certain auto accidents.  If a company owns the vehicle it's likely that they also have a business-auto insurance policy covering the business, employees, etc.  But what isn't always as common is that same business-auto insurance policy extending coverage to anyone in the employee's family driving the company car.

Imagine if your client's spouse drives to the grocery store some night and causes an accident.  There are many business auto insurance policies out there that will not provide insurance for a non-employee operating the car.  If your client's company has that kind of business-auto insurance policy...oops!  No coverage from the business policy!

And unfortunately, your client's personal auto policy will probably deny coverage for the regular use of any vehicle not insured under the personal policy!  So under this scenario there'd be no coverage under the business-auto insurance policy and no coverage under the personal-auto insurance policy! Any judgment or settlement to the injured parties will have to come from your client's personal assets.

Besides the obvious to-do-list item of always checking with the employer to learn about the scope of insurance provided by the business-auto insurance policy, we recommend adding a "Drive Other Car" endorsement to your client's personal auto policy.  This endorsement usually extends personal auto policy coverage to all family members who may drive the company car.  And with most insurers usually costs about $40/yr!  No brainer.

Mechelsen, Inc.             Darren McGraw, MBA, CIC             mechelseninc.com

Increase Deductibles, Save Premium

Reduce Premiums:  Increasing deductibles saves money, allocates premium better.

If your client has only $1 to spend on insurance, would you rather see her insure her fairway driver golf club against theft, or buy 10X more net worth protection from lawsuits?  Many home owners spend way too much money insuring the smallest portion of small claims, but are inadequately protected against losses that could ruin them financially.

Increasing deductibles saves money on insurance premiums which can often "fund" incremental premium expenses tied to adding more critical coverages (Dwelling limits, Scheduled Valuable Property, Liability limits, etc).  In fact, in most cases clients can improve the scope of their total insurance protection without spending any more if they are willing to reallocate their premium expense toward the "big things" and away from the "small things".  Building that rationale into the custom design of the risk/insurance portfolio produces a tangible and powerful financing of risk. 

Mechelsen, Inc.                 Darren McGraw, MBA, CIC                  mechelseninc.com

Red Flag Alert - Old Homes

Red Flag:  Clients with old homes.

Most standard home insurance policies limit the amount of recovery provided to bring a home up to current building codes after a loss.  Suppose one of your clients suffered a big loss to their old home.  If their home happened to have 2x4 studs, lead-painted sills, an unbolted foundation, steep stairwells, and R10 insulation there's a good chance that before the home can be rebuilt changes will need to be made to the design and materials because they won't be able to get a permit or pass inspection otherwise!  And since 2x6s, foundation re-working, stairwell redesigning, and better insulation all cost more than what the home had before the loss, bringing the home up to current building code standards is going to cost more to rebuild that what it would cost to build the home exactly how it was. 

This incremental cost for bringing the home up to code is often limited by most home insurance policies to just a small portion of the Dwelling limit.  There have been cases where a client's policy had enough insurance to pay for the reconstruction, but not enough to pay for the building code upgrade costs.  This meant that the client was underinsured (i.e. they had to pay out of their own pockets). 

Fortunately, the remedy for this is very inexpensive!  If you have a client with an older home, quickly look at their limit for "Ordinance & Law", which should be listed on their home insurance declarations page.  Does it say "10%"?  Call us.  Good insurance and risk management is not about spending more, it's about knowing more.

Mechelsen, Inc.                     Darren McGraw, MBA, CIC          mechelseninc.com