Is Your Insurance a Good Fit? Property and Casualty Coverage Needs as Much Attention a D&O

Article excerpt

Community banks are very specialized operations. Too many of them buy general property and casualty insurance protection suited more for retail or manufacturing concerns.

In fact, an alarming percentage of the banks for which we perform our insurance reviews, have inadequate or inappropriate property and casualty insurance protection. This can not only be expensive, but can result in dangerous gaps or inconsistencies in the bank's most critical insurance protection.

This article is our best effort to pass along to you the benefit of the experience we have gleaned over the years in performing risk and insurance studies for ABA member banks. We have identified those coverage elements that are most frequently ignored, misunderstood, and/or misapplied. Share this information not only with the individual in your bank responsible for its insurance program, but with the agent with whom that individual works.

Five administrative tips

A few suggestions can improve the overall quality of your bank's entire property and casualty insurance portfolio. If followed, they will promote the continuity and uniformity of your insurance program, eliminate the need for constant references to policies, and generally result in a more economic and efficient administration of your program.

1. Coverage consolidation: All insurance policies should be purchased on a bank-wide basis. No insurance coverage should be purchased without the designated insurance coordinator's express knowledge and approval. One source of insurance will maximize your purchasing leverage and help assure a coordinated insurance program.

2. Notice and knowledge of occurrence: Property and casualty insurance policies invariably require a prompt notice of loss. Should this notice not be made in the time required by your particular policy, coverage may be denied. For that reason, we recommend that all policies be amended as follows:

a. Notice of occurrence/accident:

"The failure of an agent, servant or an employee of the insured other than the insurance coordinator to notify the company of any occurrence/accident of which he/she has knowledge, shall not invalidate the insurance afforded by this policy."

b. Knowledge of an occurrence/accident: "Knowledge of an occurrence/accident by an agent, servant or employee of the insured bank shall not in itself constitute knowledge by the insured unless the insurance coordinator shall have received such notice from the agent, servant or employee."

3. Errors and omissions: Policy conditions generally require full notice and disclosure of all significant exposures, values, and the like. It is impossible for the banker to be sure that his insurance coordinator is in continuous compliance with these requirements. For that reason we recommend that an "errors and omissions endorsement" be added to all your policies--especially the general liability policy form. We suggest the following wording:

"Loss recovery under this policy will not be denied or prejudiced by an unintended and/or inadvertent omission, error, incorrect valuation or incorrect description of the interests, risk or properties insured hereunder, provided that notice is given to the insurer as soon as practicable upon the discovery of any such condition. "

4. Named insured: The broader the description of the insured, the more valuable will be your coverage. It is often difficult to be sure that all your subsidiaries and operations are adequately named on the declarations page of your policy. For that reason, we suggest you use the following description on all your property and casualty policy forms:

"XYZ Bank, its subsidiary or affiliated companies, successors or assigns as now exists or may hereafter be acquired or formed."

5.. Cancellation and nonrenewal provision: Too many insurance policies permit the insurer to provide a relatively short cancellation or nonrenewal period. …