November 8, 2010
by Virginia Reames
Commercial Lines Manager/Agent,
The Policy Center
Nobody ever really thinks too much about insurance. It may cross your mind when you get a bill or if you have a claim. Maybe you think about it when you have to get your agent to send out certificates when you bid a job, or when you get a bill for adding something to your policy. But mostly, your biggest concern is how much your insurance will cost you this year.
Let’s talk about that cost —
As long as you don’t have any claims, you figure your premium ought to stay the same, right? Or, thanks to some cleverly worded TV ads, you get the idea that your rates should even be going down. Even though you may have operated damage free, someone operating in the same class of business, perhaps even in another state may have had a huge claim. The result could be that everyone in the same business class gets a rate increase.
However, what if you are directly responsible for the huge claim in question? Suppose you are sent to a job and no one called 811? Time is money in business; someone’s on the clock and the equipment has to be somewhere else tomorrow. And you tell yourself that this is such a small job that chances are nothing will get cut, so you just don’t call. You arrive, look things over quickly and begin to dig. Did you get lucky?
What if the phone line you cut shuts down 911? What if the fire department communications got knocked out and it was too late getting the call about that apartment fire which then became a total loss? Or suppose you cut a gas distribution line that ignites and their phones were also down – see where this is going? Any idea what these costs are going to be?
Ok, so you have insurance. You’ve been paying premiums for years, right? Even if you have a $5 million umbrella, do you know what’s going to happen now?
The company is going to escrow your first million, and probably your umbrella (known in the business as “Reserve”). They’re going to put a law firm on the defense for you (more serious bucks), but they know that “reserve” money is gone. It may take years in and out of court but they know they’re going to have to pay big. They can’t use that money because there are laws controlling all that. And insurance companies also have insurance companies called “reinsurance”. They also reserve (probably most of that umbrella!)
The only way they won’t have to pay out all that money (your policy limits) is to prove you were not at fault. Had you called 811 before you dug and hit lines that weren’t marked, likely you would be in the clear. But you didn’t call and for all the reasons outlined above. Likely, you will unfortunately be found negligent – grossly negligent and that’s a bad spot to be in. It is true that you didn’t intend to do it, but you didn’t take the steps to prevent it. And it’s the law!
Now, you are coming up for renewal and you have that huge reserve out there. IF you have been with the same company for ten years or so, and IF you haven’t had any claims before, maybe just maybe, the company will decide to keep you on and offer you a renewal. But, more than likely, they will non-renew you. “Sorry, too big a risk”. Don’t worry, they are still responsible for the big claim, but they are no longer willing to insure you going forward. You have business contracts requiring that $5 million umbrella, and your business depends on contracts like that, so you get mad and call other agents.
Well, to offer a new quote, most insurance companies require something called Loss Runs from your prior carrier, not your agent, but the company itself and there sits the pending claim. They likely will not offer a quote either, because they are not willing to take the unnecessary risk. Especially since the company that wrote you for ten years prior isn’t willing to stay with you. They’re somewhat like sheep, if one says “No”; the others probably will say the same thing. If they offered the quote “Pending currently valued loss runs”, they would likely rescind the quote when they see the claim out there. If you misrepresent your situation (out of desperation) and say “I got all my experience by working for my brother, but this is my first year in business for myself” and get coverage, you need to understand this: all companies do what’s called an “inspection”. In other words, they check. When they discover the claim and the facts do not align with your story; they will cancel the policy for “material misrepresentation.”
But let’s pretend for a moment longer, that for whatever reason, they either didn’t conduct their inspection, or missed it somehow (very unlikely) – but just pretend here for a few more seconds. It can get worse. (since things do happen in threes) Let’s say your backhoe clipped someone’s truck, and you turn in a claim. You can believe that they will now find that pending claim and will deny this claim.
Why? They will say that due to the fact that you “materially misrepresented” your information to them on your application, and if they had known about the claim they would never have written the coverage in the first place, hence the current policy in essence never existed.
They will refund your premium, and you can pay for that truck out of your own pocket because you have no insurance.
Did I mention the fact that they will also notify all your certificate holders that there is no longer any insurance in effect?
And now YOU are now uninsurable. You can’t get insurance because nobody will write you. You might find a “B” or lower rated carrier who might write maybe $100,000 liability policy for an outrageous price (IF you can find it at all). But if your contracts require a $5 million umbrella and you can’t show proof of that coverage, they will go with the one who can.
It can happen. It does happen. Don’t let it happen to you – call 811 before you dig – no matter how small the job.
