Named Insured: Careful! That First Step's A Doozie!

A Killer Coverage Gap That Can Be Fixed At No Cost!

by Matt Starkey, Co-creator of The Gapper
www.thegapper.com

"Who's on first?"

Could there possibly be a more critical component of any commercial insurance policy than the "Named Insured" wording? Incredibly, many brokers don't seem to think so, based on the fact that so many policies contain incorrect or incomplete "Named Insured" wording! In fact, once you start paying careful attention to this detail you'll literally be amazed at how many mistakes are made in this area, giving you a golden opportunity to demonstrate your expertise and win the account.

Why is the "Named Insured" section so important? Simply because if the "Named Insured" wording is incorrect then the entire policy could be nullified, making everything that follows (e.g. limits, coverage, etc.) moot. If the entire policy is not nullified, then at the very least coverage may be denied for those entities that are not properly identified on the policy, creating a major coverage gap. Therefore, it is critical to carefully and thoroughly evaluate the "Named Insured" wording in each policy you are reviewing.

"The Named Insured should be the first thing you evaluate... Taking the
time to properly do so can pay off handsomely!"

"What, me worry?"

Let me give you an example of what I'm talking about. In the following true story only the names have been changed to protect the innocent! A few years ago we reviewed a Property & General Liability "Package" policy for a medium sized manufacturer of plastic goods who had been in business for approximately 15 years. The "Named Insured" on the policy read:

"The Plastic Parts Company"

That's it, nothing more, nothing less. So what's the problem? Glad you asked! The problem is that this was an alarmingly incomplete "Named Insured," to such an extent, in fact, that it is doubtful the policy would have responded to any serious claim.

It turns out that "The Plastic Parts Company" was merely the DBA of an (unnamed) Corporation, the sole owners of the Corporation were a husband and wife, and their shares were held in a Family Trust. Here's how the "Named Insured" should have been structured:

"The John Doe & Jane Doe Family Trust;
Plastic Parts Company, Inc., A California Corporation
DBA: The Plastic Parts Company;
John Doe & Jane Doe Individually As Their Interests May Appear"

Note that as written the policy afforded no coverage whatsoever to the Corporation, not to mention the Family Trust. When this error was pointed out to the insured the Corporation President's initial reaction was "Well, I'm not too worried because I'm sure the insurance company would cover a claim anyway." WRONG!!!

"From the School of Hard Knocks"

By the way, I'm speaking from personal experience. An agency I co-owned for 15 years was named in an E&O suit due to a "Named Insured" problem. Specifically, a Family Trust that owned the shares of a Corporation was named in a General Liability claim, but there was one little problem—the Family Trust was missing from the "Named Insured!" An appeal to the large national "A" rated household name carrier on the basis of the "Persons Insured" provision of the policy, which stated that shareholders of a Corporation were considered persons insured, was flatly rejected. Even in the face of a bad faith lawsuit the carrier steadfastly denied coverage.

Occasionally, you may find an Underwriter who balks at the complete" Named Insured" list you submit. Usually, they state that the definition section of the policy addressing "Named Insureds" makes specifically listing one or more of the entities you've identified unnecessary. In such instances simply respond that they therefore should have no objection to specifically listing the entity(s) you have identified, since by their own reasoning that entity(s) is already included anyway! If they still refuse then request confirmation in writing that, by policy wording, the entity(s) you have identified are considered Named Insured entities, and keep that on file!

"You really can't blame 'em!"

Never count on an insurer's benevolence. In dealing with insurance companies it's important to remember a couple facts:

1- Insurance companies are quite good at collecting premium, however, when it comes time to pay a claim, especially a very large claim, they are very good at finding ways to pay back as little as possible; and

2- You really can't blame them! Insurance policies are legal contracts between the "Named Insured" and the carrier. Therefore, especially because an insurance carrier's ultimate obligation is to its shareholders (not to the policyholder), they carefully (and rightly so) follow any policy wording that allows them to minimize payments or deny claims outright;

Because of this every part of an insurance policy, starting with the "Named Insured" wording, needs to be carefully examined.

"What's A Broker To Do?"

So how do you assure that the "Named Insured" on a policy is proper and complete? Simply list each and every entity (e.g. Trust, Corporation, Partnership, Joint Venture, DBA, AKA, Individual, etc.) that has an interest in the business. Make sure that the "Named Insured" wording accurately reflects the exact and complete legal names of each such entity, and the relationships between those names. Then, go one step further, and try to identify any "de facto" trade names, DBAs, or AKAs. These should be listed also.

What do I mean by a de facto trade name? Here's another real example, and again the actual names have been changed. I was asked to evaluate coverage for a Non-profit Corporation in California providing various social services to elderly citizens. Starting at square one, I examined the "Named Insured." The Corporate name, which was the only "Named Insured" on the policy, was accurately identified as "California Elderly Services, Inc." (again, not the real name). However, the insured's website address, building signage, and even the way they answered the phone was "California Senior Center." Even though "California Senior Center" was not a formally filed DBA, we arranged to have it added to the "Named Insured" as the Corporation was essentially holding itself out to the public under that name.

Here are some items you can investigate in an attempt to identify possible de facto trade names:

- Website urls & email addresses
- Product packaging
- Phone answering practices
- Advertising & promotional material
- Signage
- Invoices, business cards, and other stationary

Summary:
Pointing out to a prospect that the "Named Insured" on their policy(s) is deficient, that this deficiency can completely nullify coverage, and that this deficiency can be corrected at no cost makes a compelling argument to appoint you as their new broker. The "Named Insured" should be the first thing you evaluate in your review of an insurance program. Taking the time to properly do so can pay off handsomely, and you just might be surprised how often you'll find oversights on the part of your competitors!

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