One of my industry heroes was Don Malecki, CPCU, ARM. You will find a photo tribute to him at the foot of every page on my web site. Don was one of the most brilliant coverage analysts I’ve ever known. I was fortunate that I got to know him well over the past couple of decades and privileged to call him a personal friend. So, when I was asked to take over Don’s regular CPCU Coverage, Litigators, Educators, and Witnesses (CLEW) Interest Group. newsletter column, I was humbled and honored.
One of the first articles I recall reading by Don talked about a “belt and suspenders” approach to risk management. Don referenced this principle often in his voluminous writings. Google “risk management belt and suspenders approach” and the first hit will probably be a Rough Notes magazine article of Don’s. So, it’s only fitting that my first coverage column return full circle back to that concept.
A “belt and suspenders” approach usually reduces risk through some measure of redundancy. I’ll give you two examples, the first involving additional insured vs. indemnitee status on a CGL policy and other involving auto insurance vs. loss damage waiver when renting an auto.
Additional Insured vs. Indemnitee
The following is an actual email inquiry I received from a Texas agent:
“In the past, we have not been individually adding Additional Insured endorsements, relying on them being an indemnitee in the ‘insured contract’ wording of the CGL or BOP policies, which gives them AI status without endorsing that on the policy. Our state now has a law that says if we put AI status on the certificate, we MUST have an AI endorsement added to the policy. Is this correct or can we still rely on ‘indemnitee in an insured contract’ and not go to the trouble or expense of using AI endorsements?”
Honest, I did not make this up. I have found that many agents do not fully understand the difference between being an additional insured and an indemnitee. While we can’t explore all of the details, each has an important distinction within a CGL policy. With ISO forms, an additional insured is not covered for its sole negligence but does receive defense outside of limits. An indemnitee, on the other hand, IS covered for its sole negligence but defense is usually inside limits. Each status (AI vs. indemnitee) within the CGL policy has its upsides and downsides, but working together they increase the likelihood that a claim will be covered in some measure.
Auto Insurance vs. Loss Damage Waiver
No doubt, you have had insureds ask you if they need to buy the physical damage waiver from the rental car company if they have auto insurance. The answer, if you want to maximize their protection from financial loss (and your protection from an E&O claim), is a resounding “Yes.” The reason is that each approach provides protection the other doesn’t.
For example, most auto policies do not cover diminished value assessments by the rental company. I’ve seen DV charges of several thousand dollars in multiple claims. In another claim, a customer was hit with a $9,000 loss of use charge when a rental car company could not get repair parts following the Japanese tsunami. His auto policy paid $600 of that. And the list goes on.
On the other hand, the loss damage waiver may be voided by rental agreement violations, from driving off paved roads (common in Hawaii) to DUI charges. ISO auto policies have no exclusions for this, though some lesser forms do. So, as you can see, most auto policies and loss damage waivers work together in a belt and suspenders approach.
When considering questions like these two, ask yourself, “What would Don do?”