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In insurance policies, there never seems to be a shortage of exclusions or restrictions to be found, leaving many industry professionals shaking their heads and wondering about the increasingly illusory value of insurance contracts. For many policyholders, these exclusions or restrictions are not revealed until the policies are finally issued, often more than six months after coverage was bound and reviewed.

Conditional renewal notices are supposed to point out coverage reductions, but often are confusing, vague or simply incomplete. Sample policy forms and endorsements almost never accompany renewal proposals unless the buyer requests them. This leaves the buyer with little but price and the producer's recommendation on which to base the purchasing decision. What's worse is the producers have often not obtained, much less reviewed the sample policy forms either.

Another umbrella insurer recently incorporated an aircraft liability exclusion into its new policy form which excluded aircraft owned, rented or chartered by, or loaned to, any insured or on the insured's behalf, with or without crew unless coverage is available in scheduled underlying insurance. Most umbrella insurers will provide coverage when aircraft are rented, loaned or chartered with crew, which is a valuable coverage extension since most general liability policies, and all ISO commercial general liability policies, exclude any aircraft owned or operated by or rented or loaned to any insured.

Professional liability exclusions are finding their way into commercial general and excess umbrella liability policies, often with language that is vague where "professional services" is not even defined. According to once source, an insurer defined "professional services" to mean "any services requiring specialized skill or training." In another instance, an insurer used an endorsement to exclude the professional services that were described in the endorsement's schedule and then completed the schedule to read "all operations and products of the insured. . ." which taken literally could void all coverage.

Property insurers using non-ISO forms are continuing to cut back on coverage too. Most property insurance policies, including builders risk policies, have always allowed the named insured to waive rights of recovery before a loss. Such waivers are common and place responsibility for loss payments on the insurer covering the risk. American Institute of Architects' construction documents routinely call for all parties to waive rights of recovery against each other and this includes owners and contractors waiving rights of recovery against the architect for a construction project. In one recent situation an owner signed an AIA Owner-Architect Agreement with such a waiver provision. When the owner received bids for the project's builders risk coverage, imagine the surprise when the owner found many of the proposed policies did not allow the named insured to waive rights of recovery against an architect or engineer.

Close examination of policies before they are purchased is the only way to understand the value of the contract that is being purchased.

CHARLES COX, a principal of the Orchard Park, N.Y., consulting firm of Aldrich & Cox, writes a regular column for Risk & Insurance®.

March 1, 2006

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