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Apples to Apples Myth: No Comparison
By: R. Earl Burkett, CIC
As an agent I am often told, “Just give us an apples to apples comparison.” My response is, “I will be happy to do that. Which apples do you want me to compare? Red Delicious to Granny Smith? One is sweet, and one is sour, yet they are both apples.”
Insurance policies are like apples in that some are sweet, and some have hidden worms in them. Those with the worms are not found out until a claim happens. Then, it is too late to do anything but follow the policy language. In the world of apples, there are over 7,450 different varieties with only 2,500 varieties grown in the North America. The only indigenous apple in North America is the Crabapple. Even if you compare two apples of the same variety they will not be exact in all aspects.
Commercial insurance policies in Florida, Georgia, and throughout the country are like apples in that they are not alike. This is especially true for commercial policies for a particular market segment. Let’s consider a general liability policy for a church or house of worship. When you look at the declarations page and/or a quote sheet, the limits could be identical with both companies. However, the difference is usually buried in the policy language. There is an old saying that says, “If it appears too good to be true, it probably is not.” Companies will not give anything away for a cheap price. The way they can charge less is by limiting their exposure to loss. Therefore, they structure the language of the policy to limit their losses.
In order to keep this blog brief, let’s look at one specific area of coverage concern for your organization: Sexual Misconduct. This coverage can also be referred to as Abuse and Molestation coverage or Sexual Liability coverage. Churches and houses of worship need this protection as do other non-profit organizations that work with children. For the sake of discussion, let’s consider a liability limit for Sexual Misconduct of $1,000,000. On the surface that looks like a good coverage amount to compare to in your current policy or one that you might be considering. The scope of the coverage can be greatly reduced in the language that is in the policy. For instance, there are some policies that exclude anyone from coverage that has been “alleged” to have participated in the act of sexual misconduct. This one word, “alleged” changes the protection of everyone in your organization that might be falsely accused. In today’s world that happens far too often. This word dictates that whoever is accused, guilty or not, receives no benefit from the policy. By accepting this type of policy language an accused must pay for their defense cost. This should be a huge concern for your organization, especially when it might be you or a close family member. The preferred language would read to provide coverage until the accused person is found guilty by a court of law. Some policy language can exclude Punitive Damages or Exemplary Damages that a court might award.
Other language that appears in policies from time to time is the way defense costs are handled. The wording “defense cost ‘inside the limit'” will usually result in a lower premium but it creates a problem at the time a claim is filed. In simple terms, this means that the $1,000,000 limit we have been discussing is eroded by the legal costs the company incurs. An example would be:
- Liability Limit of…………………………………………………………$1,000,000
- Company spends $500,000 in legal fees………………………….. – $500,000
- Liability limit remaining for claim payment……………………………..$500,000
- Organization exposed for any judgement or claim settlement over…$500,000
A defense cost “outside the limit” provides much better protection for your organization.
As you can see, there can be many pitfalls to an “apples to apples” comparison. This discussion is limited to only one coverage part of the policy. There can be similar trouble spots in other areas of coverage.
Again, companies are not in the business to give away coverage for a cheap price. Unfortunately, you get what you pay for.
When evaluating the protection of your organization, it is important to work with a professional who knows and understands the protection you need. After all, if you have a toothache you would not go to a general practitioner doctor. You would search for a qualified dentist with a good reputation to have it looked at. The same is true with your insurance protection.
As you can see, there really are no “apples to apples” comparisons when it comes to protecting your organization and its members. If the worm in the apple is to be found, the time to do it is before you bite into it.
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