Difference in Conditions Coverage: What Is It and Who Needs It?



...a property policy that limited its loss situations to those caused by specific named perils. ADIC policy can still be used for that purpose, but since it is more common today for property insurers to provide coverage on an all-risks basis, DIC policies are bought primarily by firms with a significant flood or earthquake exposure.

In addition to providing coverage for flood and earthquake losses, a DIC policy may also be used to provide excess limits over flood and earthquake coverages that may be provided by endorsement in a commercial property policy, or through the National Flood Insurance Program (NFIP). For example, a primary commercial property policy may only offer $500,000 in flood or earthquake coverage, so the DIC will be used to write coverage excess over the primary limit.

It also may be used to cover other exposures that may not be covered in commercial property policies, such as property in transit or business interruption claims stemming from a transit loss. It also is noteworthy that some commercial insureds purchase DIC coverage to cover property at overseas locations. In standard commercial property insurance, the insured’s property is covered only while it is located within the United States (including its territories and possessions), Puerto Rico, or Canada. Commercial insureds that ship property to or receive property from foreign countries need broader territorial limits. In addition to limits for flood and earthquake, some DIC policies include an “all other perils” (AOP) limit.

Who needs it? Any business that needs more protection than that provided by standard property insurance, especially with regard to the flood and earthquake perils. This could include contractors, manufacturers, retailers, or a variety of service and professional businesses. Since flood or earthquake losses can be catastrophic, no one insurer may be willing to write a DIC policy with the limits requested or needed by the insured. In such cases, two or more insurers may be willing to share the risk on a layered basis or through a quota share (an agreed- on percentage) approach.

ADIC policy is sometimes likened to an umbrella policy that provides coverage for property exposures not covered by standard forms. DIC insurance is a non-filed class of inland marine insurance in most states. Being a non-filed line means that insurers do not have to file rates for approval with state insurance departments and have greater flexibility in setting rates and drafting policy language. Insurers are often willing to negotiate coverages and limits with insureds.

Losses caused by flood or earthquake are excluded in commercial property policies. Although endorsements are available to add flood and earthquake coverage to a commercial property policy, some insurers are reluctant or unable to provide this coverage because of the catastrophic exposure associated with these perils. But there are other insurers that specialize in insuring firms with a high risk exposure to flood or earthquake. ADIC policy will be purchased when an insured has a significant flood or earthquake exposure and the commercial property insurer does not offer flood and earthquake coverage, cannot...

“Who needs it? Any business that needs more protection than that provided by standard property insurance, especially with regard to the flood and earthquake perils.”