Margin Clauses Making Agreed Value Options Extinct!



...the use of the agreed value option, insurance purchasers have been able to capitalize on their losses without having to spend more on insurance than otherwise might have been necessary.

To combat the advantages of blanket, agreed amount coverage, some insurers—undoubtedly through the insistence of reinsur- ance companies—began to issue blanket, agreed amount policies, subject to margin clauses.

The margin clause can operate differently among insurers. In fact, the percentage might vary with the insured, insurer, the location of the property, the nature of the protection and other factors. Referring to the earlier illustration, if a margin clause of 110 percent were to be applicable, the most the insured would net would not be $500,000, but instead, $275,000 ($250,000 x 110 percent).

The New “Optional” Margin Clause

One of the commercial property policy changes implemented by the Insurance Services Office in August 2008 in most jurisdictions was an optional margin clause. This means that the margin clause will now likely be issued by most insurers whenever blanket prop- erty insurance is desired.

Under ISO’s approach, an endorse- ment entitled “Limitation On Loss Settlement—Blanket Insurance Margin Clause” (12 32 06 07) will be available in relation to the Building and Personal Property Coverage Form, Condominium Association Coverage Form, Condominium Commercial Unit-Owner’s Coverage Form and Standard Property Policy.

The margin clause amount can range from 110 to 150 percent. (Over the past couple of years, the margin clause amount in policies subject to it has commonly been 120 percent.) Whatever the case may be, this endorsement explains how the amount of insurance payable...

“In light of the application of the margin clause, the agreed value provision, for all intents and purposes, will become extinct.”