The Insurance Report - August 2005

EXCLUSIONS & CONDITIONS
By Roland L. Enz - President, California Plus Insurance Service, Inc.

The concept of insurance is quite simple - or is it? You would think that if a company takes your money for coverage and in the event of a claim that claim would be paid for. The broad stroke of coverage, in a policy, is stated in the first paragraph of any insuring agreement. It usually goes something like this:

We will pay all sums an “insured” legally must pay as damages because of “bodily injury” or “property damage” to which this insurance applies, caused by an “accident” and resulting from the ownership, maintenance or use of a covered “auto”.

That broad stroke is limited by the exclusions and conditions that make up the completed policy. It is important that you take time to familiarize yourself with the policy and to make sure that you understand what parts and sections pertain to your insurance contract. Just because it is in the policy does not mean that coverage exists. Coverage only exists for those coverages that are indicated on the Declaration Page and that you have paid for. Your coverages, usually, are written in a preprinted package and may create confusion if you do not take the time to understand it.

Auto Liability, Physical Damage and Cargo make up the coverages most owner-operators require. Other coverage may be required to meet specific needs such as General Liability and Workers’ Compensation, but for the sake of space, we'll keep our discussion to only the three basic coverages.

Your Liability may be written on one of several different forms and/or may be written on a form that is specific to the company that has provided coverage. Usually the form is called Truckers Coverage, Business Auto or Commercial Auto. It makes no difference as long as coverage is implied. This coverage provides third party indemnification. The term tort is used, meaning that coverage is provided to a person or entity that you have an obligation to pay resulting from an accident.

Each section of coverage in the policy will have its exclusions. Typical exclusions for liability are Contractual, Workers’ Compensation, Employers’ Liability, Care Custody or Control, Handling of Property, Movement of Property, Operations, Pollution, War and Racing.

The Physical Damage part of the trio of coverage is more specific. You have listed your equipment and indicated values that you are insuring. Be careful that you do not inflate your values. Even though you have specified values, the companies’ position is that they will only pay what the equipment is worth. Only insure to value, do not over insure. There are two parts to Physical Damage – Comprehensive or Specified Perils and Collision and Upset. There is a small difference between Comprehensive and Specified Perils, but not much, since the deductibles usually are the same.

The exclusions for Physical Damage are limited but should be reviewed. They typically are Nuclear Hazard, War, Racing and Equipment that is not original to the vehicle (like sound, radar and monitoring equipment). Coverage does not exist for wear and tear, freezing, mechanical or electrical breakdown. Also, coverage does not exist for blowouts, punctures or other road damage to tires. I have had several instances of fire caused by the destruction of a turbo. The damage caused by the fire is covered, but the mechanical is not, unless the vehicle is a total loss, than they pay the entire loss.

Cargo and those losses associated with this coverage creates the majority of all problems, misunderstandings and ill will. There are two basic cargo forms - Specified Perils and Broad Form. Specified Perils states what is covered. Broad Form indicates what is not covered and provides for broader coverage. There are several sections in a cargo policy including the insurance agreement, what is covered, what is not covered, the deductible, limits of insurance and definitions. Review these. The policy will also outline what your responsibilities are in the event of a loss.

There is also some kickers, such as refrigeration breakdown, theft and unattended vehicles. In the case of refrigeration breakdown, the coverage can be bought back, but there are limits and requirements associated with that particular coverage. Theft may be an issue if it is left unattended or it may not exist at all. The policy will clearly outline what is and what is not covered. Reefer breakdown comes with certain requirements that you have to maintain, such as monthly maintenance. Review that part of the policy for its requirements. Maintenance records are very important.

Co-insurance may be an issue. If you do not insure to value, in the event of a loss, you may find yourself short by that percentage. Always insure to value - nothing more, nothing less.

I cannot cover all of the bases in this brief article. What I had hoped to leave you with is the basic concepts of what is and what is not covered and to realize that most policies have specific exclusions and conditions. More importantly, I hope that you will take the time to familiarize yourself with the policy that you have purchased. If there is something in your policy that you do not understand, ask your insurance agent for some clarification.

If you have any comments, questions or insurance-related questions, feel free to contact me through California Plus Insurance Service, Inc. at 1-800-699-7101.