Saturday, September 02, 2006
Grapes of Wrath
Some California vintners are up in arms over what they consider to be "loopholes" being used by their insurance carriers to deny losses due to a Napa Valley warehouse fire late last year. At issue for several wineries wrangling with insurance companies is what are called "site-specific" clauses. Claimants paid premium costs to insure all of their wine, but their policies required them to specify how much wine would be kept in their winery and how much in the storage facility--an inconvenient requirement for businesses that move product between their winery and storage all year long.
"We paid the insurance and now they're finding little tiny loopholes to get out of paying us the money," claims Allan Christensen, one of the vintners. He and others who lost wine late last year in the Wine Central warehouse blaze feel that they are being victimized.
George Wallace, an attorney and author of the Declarations and Exclusions blog, argues that a simple change of location can have an enormous impact on the risk an insurer is agreeing to assume. Location clauses, he argues, are not "loopholes" but rather essential defining features of the contract between insurer and insured. Wallace also notes a pertinent question not raised or answered in other posts--the extent, if any, to which management at Wines Central is responsible to provide insurance to protect their customers' stored inventory.
The Specialty Insurance Blog (an insurance industry source) observes that "there are good underwriting reasons for property policies to have insured location provisions, but these provisions make the policies more complex."
"This shifts the difficulty of properly assessing and communicating coverage needs to the agent," that blog continues, "and as complexity increases so does the chance of error."
What can we learn from this real-life problem?
First, most agents should have some sort of a review or checklist process which will address these questions. As the complexity of insurance increases, the public has a right to expect agents to be more thorough in articulating potential problem areas, and it should be good business for the providing companies.
Next, we all have a responsibility to be thorough, and to volunteer information that might be critical for your insurer to know. Why the vintners mentioned in this case did not tell their agents that they were storing large amounts of wine in someone else’s warehouse is not clear; if the information was withheld to save money on premiums, then the savings were far outweighed by their eventual losses.
It seems most likely that the losses of Allan Christensen and others in the California vineyards were the result of ignorance on their part and lack of initiative from their agents. How can we all do better before the next big loss occurs?
Wider dissemination of potential loopholes and more attention to possible pitfalls are great first steps. That's the purpose of this blog.
"We paid the insurance and now they're finding little tiny loopholes to get out of paying us the money," claims Allan Christensen, one of the vintners. He and others who lost wine late last year in the Wine Central warehouse blaze feel that they are being victimized.
George Wallace, an attorney and author of the Declarations and Exclusions blog, argues that a simple change of location can have an enormous impact on the risk an insurer is agreeing to assume. Location clauses, he argues, are not "loopholes" but rather essential defining features of the contract between insurer and insured. Wallace also notes a pertinent question not raised or answered in other posts--the extent, if any, to which management at Wines Central is responsible to provide insurance to protect their customers' stored inventory.
The Specialty Insurance Blog (an insurance industry source) observes that "there are good underwriting reasons for property policies to have insured location provisions, but these provisions make the policies more complex."
"This shifts the difficulty of properly assessing and communicating coverage needs to the agent," that blog continues, "and as complexity increases so does the chance of error."
What can we learn from this real-life problem?
First, most agents should have some sort of a review or checklist process which will address these questions. As the complexity of insurance increases, the public has a right to expect agents to be more thorough in articulating potential problem areas, and it should be good business for the providing companies.
Next, we all have a responsibility to be thorough, and to volunteer information that might be critical for your insurer to know. Why the vintners mentioned in this case did not tell their agents that they were storing large amounts of wine in someone else’s warehouse is not clear; if the information was withheld to save money on premiums, then the savings were far outweighed by their eventual losses.
It seems most likely that the losses of Allan Christensen and others in the California vineyards were the result of ignorance on their part and lack of initiative from their agents. How can we all do better before the next big loss occurs?
Wider dissemination of potential loopholes and more attention to possible pitfalls are great first steps. That's the purpose of this blog.
