Sometimes It's What the Policy Doesn't Say That Counts!



...existing insured property to them during the current insurance year.

The Challenges of a Broad Named Insured

As is usually the case, while this language may solve a host of insurable interest problems, it may also open up other challenges that must be addressed.

The agent/broker and insurer must know what could potentially be covered by such a broad grant of coverage. Is the corporation one which will stay primarily in one area of expertise or will it branch out to all kinds of businesses? For example, the coverage and underwriting considerations faced by a manufacturer of plastic spoons who buys other plastic cutlery makers would differ from those the firm would face if it bought shoe manufacturers. Additionally, the corporation would have to be a trusted client to be sure there is no moral hazard in potentially shuffling and/or not disclosing property.

Perhaps the biggest challenge on a policy with this broad named insured would be getting the total property valuations correct. As entities are added, the policy valuations could easily become inadequate. This, in turn, would create major coinsurance problems at the time of a loss; or in the worst case scenario, it could mean inadequate limits to cover losses the same as if all the entities were not covered. Ideally, this broad named insured wording should be coupled with some mechanics to be sure the property limits started and stayed adequate. For one, the limit could be selected at the maximum potential loss with a reporting provision allowing the insured to report actual values (and be charged for them) as they went along during the year. Agreed value provisions and tailored value provisions could also be used.

Broadening the Property Definition

While not as common as changing the named insured, there are still a few policies that may need broadening in the definition of covered property. One that has been seen is:

“Property of the insured or held by them in trust or on commission or in their custody or control or...

“The agent/broker and insurer must know what could potentially be covered by such a broad grant of coverage.”