Let’s take a typical scenario that occurs in virtually every agency. I am going to use a contracting risk to explain my point but this scenario could occur with virtually any class of business. Your agency is looking to insure a contractor. The current standard marketplace is not crazy about this type of risk so your agency completes an application required by your favorite wholesaler. The contractor advises you that they are basically a carpenter so that is what you note on the application. Your agency sends in the app and within a week or two, your agency receives the new business proposal. So far, so good, right? Don’t count on it!
Are you thinking that the proposal contains all of the coverage’s requested? Since this was a basic request for general liability coverage, what could possibly be the problem?
One reason why the E&S market has been able to handle risks that the standard market is not interested in is because the E&S market can modify coverage by adding specific endorsements (typically exclusions) that carve out exposures of concern. With contractors (and potentially with other classes of business), there is a very good chance that the E&S proposal will contain an endorsement typically referred to as the Classification Limitation Endorsement. This endorsement will state that the coverage (in the example used) is provided for the carpentry exposure but that is it. If the carpenter does some dry-walling or plumbing or roofing, etc., there is no coverage.
There is also the possibility that the proposal will reference various exclusions. There is no doubt that these can be significant. In fact, after reviewing the exclusions, you may wonder what coverage is actually being provided. You won’t be the 1st to ever ask this question. You may be thinking, a GL policy is a GL policy whether it is written in the E&S market or the standard market. Right? Maybe not!
It is always advisable to request the wholesaler provide you with a specimen of the policy form and the applicable exclusions. This is the only way that you will really know what coverage is being provided compared to what you originally asked for.
This specimen policy should then be provided to your client / prospect and they should be asked to review it. There is certainly the possibility the client will advise you that the coverage is not at the level that they require and thus they don’t want the coverage. It is better to find this out before the coverage is bound or before a loss occurs.
Thus on new business proposals from your wholesaler, examine them carefully. Your application may have asked for a number of various coverage’s. It is vital that you don’t assume that the proposal provides the coverage that you requested. Don’t count on the wholesaler telling you what they are not providing as at the end of the day, that is up to your agency to figure out.