The owner of a multi-family apartment building purchased a Pollution Liability policy to cover himself for possible liability arising from lead. Unfortunately, a tenant's young child ingested some lead paint chips resulting in damages. In the resulting lawsuit, the insurance company denied coverage since the owner of the building was not listed as the named insured on the insurance policy. When the application was completed by the agent, the agent listed the property manager as the named rather than the building owner. Now the owner must file against the agent's Errors & Omission policy which could take months before the case is settled.
Your Due Diligence is Your Responsibility
The above claim scenario could have easily been avoided if the owner of the building would have simply read the application. Yes, the broker is responsible for submitting a properly completed application, but as the old saying goes, "you get what you INSPECT, not what you EXPECT." The rules regarding naming an insured properly are as follows:
- Do name the person or entity causing of suffering the possible damage as the named insured.
- Don't name individuals or entities without fully understanding their relationship to the exposure being insured.
- Don't combine person types on the policy. The list of insureds should all be either legal entities or natural persons.
- Don't list multiple entities as named insureds on a policy unless there is a common ownership among all of them.
- Don't combine dissimilar operations onto one policy just because common majority interest exists.
- Don't combine, for example, a deli and an auto body shop onto the same policy simply because they have common ownership.
- Do add a property management company on to the policy as an "additional insured".
- Do add a mortgage lender to the property policy as an "additional insured" and with a "loss payable clause" as their interest may appear.
- Do require all tenants of the building to carry General Liability insurance and name the same named insureds on the building policy as "additional insured" on their policy and require a certificate each year from their agent or broker.
Anytime a valuable asset, such as a commercial building is going to be insured, it is the insurance broker's responsibility to ask the questions necessary to complete an accurate application. Don't, however, assume that since a policy arrived in the mail, that everything is fine and dandy. You are responsible for your insurance and therefore you will be named in any actions brought against the building owners by the tenants. Yes, you can sue your broker and file a claim against his or her's Errors & Omissions insurance, but reviewing your policy after it's issued will eliminate the headaches that can arise from a denial of your claim.
Do Your Policies Name The Proper Insureds?
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