Lesson 8 of 11
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Coverage Gaps and Cancellation

Collin Gabriel August 23, 2022

Key Terms:

Limit – The maximum amount of money an insurer will pay toward a covered claim or peril.

Peril – A specific event that causes damage or injury and results in financial loss. Insurance policies exist to cover you against specific perils like fire, wind, and theft. Your policy may not cover you against certain perils. Read your insurance policy to understand which perils are covered and which are excluded (not covered).

Exclusion – A peril your insurance policy doesn’t cover. Your insurer won’t pay for damage caused by an excluded event. Some policy forms contain restrictions or limitations to coverage. These must appear in the filed and approved contract wording.

Non-renewal – When your insurance company has chosen not to renew your policy at the end of its term. Insurance companies may choose not to renew your policy for a variety of reasons. The advance notice requirement for non-renewal of commercial policies, including package type policies, is 45-days.

Cancellation – When you or your insurance company ends the policy coverage before the end of the agreed period. For commercial policies, an insurance company can only cancel your policy under certain circumstances. An insurance company must send you notice at least 10 working days’ before cancelling your policy for nonpayment, fraud, material misrepresentation, or when something comes up in the 60-day underwriting period.


Craig Vattiat (00:00):

Let’s take a moment to kind of think about coverage gaps. Now, this is often where unfortunately, folks think that they’re adequately insured and then they find out after loss that they weren’t. Um, and that’s probably the worst place to be, right? So we want to really consider what those exclusions, those, those areas, where your insurance policy will not cover you for those risks. Um, some of those perils can be covered again by buying additional insurance. So you might learn that, Hey, you know, flooding is not covered by your standard, uh, property insurance. And so that’s where purchasing flood insurance, or again, earthquakes are, uh, a risk in Oregon purchasing earthquake insurance might be a way to protect yourself against that gap. Um, rather than just buying a policy, you can do, what’s called again, adding an endorsement. So you would add something to the existing policy that would cover flooding.

Craig Vattiat (01:01):

Now, of course, there would be an additional cost there, but you would know that you’re protected in that situation. Um, there’s also, uh, another option available rather than just buying that flood insurance or that earthquake insurance. And it’s called a difference in conditions policy. So again, that might be something you, you remember and you ask your agent about and a difference in condition policy is typically going to offer kind of all in one coverage for things like landslides, mud flows, earthquakes, and floods. So those are again, perils that are not covered by your standard property policies can be covered in what’s called a difference in conditions, policy. That’s kind of a nice way to get that extra protection for all of those different pers in one additional policy, rather than having to buy separate earthquake insurance or separate flood insurance.

Craig Vattiat (01:59):

Um, you know, before we move on, just keeping in mind, there are a lot of other coverage options, um, cyber or data breach insurance is a really growing market. Uh, unfortunately the cost of that insurance is, is also going up. But you think about, um, the cost that might be associated with, let’s say a, uh, ransomware attack or where your system has been breached and maybe your customer’s data has been exposed, um, that kind of insurance can help to pay for some of those costs associated with that, that loss. Um, there are other insurance policies too, I’ll mention business crime insurance, so that might provide coverage due to, uh, forgery, embezzlement or theft committed by somebody within the organization. Okay. So think thinking about all that again, your, your insurance company can help you, um, consider some of those additional coverages. Um,

Joni McSpadden (03:00):


Craig Vattiat (03:01):

Yeah, go ahead. Joni

Joni McSpadden (03:03):

On the, um, the cyber security issue for our vendors that are our businesses that are vending at, you know, farmers’ markets or outside of their home, uh, vending events where they’re taking credit card information, um, through their e-readers, is that something that they need to look at cyber security type insurance?

Craig Vattiat (03:31):

Yeah, that would be a perfect example of that. Um, and, and it will, we’ll also take a moment later on to kind of talk about some of the risks just around customer data, but yeah, that is a potential for loss, right. Um, that you might be liable for some of that, that exposure for that consumer. And so, um, that might be a way to protect your business in that situation. Um, you know, again, just a really kind of great illustration here. Remember that your policies covered you from the specific risks at the time that you took out that policy. And so if your business changes, let’s say in some significant way, uh, whether it’s the services that you provide or, uh, the products that you sell, or even the equipment that you use, make sure that you communicate that to your insurance company to make sure that you’re covered.

Craig Vattiat (04:22):

So for example, we, uh, got a call from a card detailing company that happened to be working on a boat. So again, they’re, they’re kind of set up as a card detailing business, but they were working on cleaning this boat and the business owner or employees caused damage to the boat. But since the insurance application only mentioned car detailing in the business, the business was not protected by their liability coverage there. So again, that’s just an example of where there’s a gap and you’re still exposed to that risk. And so, uh, make sure that you’re, you’re really communicating those changes to your business with your insurance company.

Collin Gabriel (05:05):

So is it, is it wise just kind of as a, um, kind of just a practice whenever you consider adding new products to a business or new services that you, you might wanna give your insurance company call? Um, because you know, like if a, you know, a business is adding an exterior patio ice cream service, well, that could open up a new, you know, area of risk and you just might wanna consult with them to see that your, your policy covers everything.

Craig Vattiat (05:35):

Absolutely. Yep. Now really think about if, is there a change that I’m making to my business that might impact my insurance needs then yeah. Make that phone call and you know, this is a situation where you wanna be safe than sorry. Right? Yeah. So even if there isn’t a change, at least you have the peace of mind by getting that response from your agent that, that confirms that yes, you do have that coverage.

Collin Gabriel (05:59):

Yeah. It’s definitely something you keep in mind for a lot of people who, who love to pivot, you know what I mean? Like we found some other way the market, you know, works for us, but make sure that when you do that, you’re also covering, uh, you know, all those ducks as well. Okay, cool. Yeah,

Craig Vattiat (06:14):

Yeah. Really important note there to really think about that. Thanks Colin. So just a note again about flood insurance for business. Again, this is not something that’s covered under your business property insurance. It’s not apparel, right? That, that originator of loss that’s gonna be covered by that policy. So again, you can purchase it as a separate policy. Um, again, I also mentioned that you can purchase it through that difference in conditions, policy. Um, it might be required if you’re in a designated flood plain, or if there’s a, uh, if, you know, if your business location was in a federal disaster area and that’s gonna cover not only your building in contents, but also, um, uh, I’m sorry, it is gonna just cover your building and the contents and that content coverage is at actual cash value. So it’s not gonna be at the replacement cost coverage that we talked about earlier, but again, still protecting providing you protection, uh, in the case that there is flood, um, there’s a 30 day waiting period for that to activate. So just keep that in mind as you’re adding it, you know, if you’re thinking about, oh, there’s this, there’s this weather event that’s happening and you try to add that flood insurance. Well, it’s not gonna take effect until 30 days after, uh, you’ve, you’ve started the policy itself.

Craig Vattiat (07:37):

All right. A few last things to finish up on the insurance side before we switch over. Um, and that’s about cancellation or non-renewal of your policies. Uh, first of all, what does non-renewal mean? Well, it is simply that your policy is not going to be renewed for an additional term. So the term ends, the policy is over and your insurance company says, well, we’re not gonna write a new policy for you. Canceled means that mid-contract the policy, the contract is being terminated. And there are only certain circumstances where an insurance company can do that. Um, typically that’s for, you know, situations of fraud or misrepresentation material misrepresentation. Um, there’s a couple of other limited situations where that can happen, but insurance companies are gonna period periodically review your policy to determine if they should consider, uh, or continue to ensure you. And again, state law limits when insurance companies can, non-renew your policy.

Craig Vattiat (08:44):

Uh, those situations might include your claim frequency, you know, so if you have too many auto policy claims, that might be a situation where they don’t renew you, uh, the claim severity, if you have a major claim, uh, or, uh, even if your driving record, uh, becomes <laugh>, uh, less safe over time, right? If you have more tickets, then they can, non-renew your auto commercial auto policy. Um, as I mentioned, cancellation can occur for things like, oh, non-payment. So if you just don’t pay your policy, that can cancel you right. Um, fraud or material misrepresentation. Now there are laws that specify the minimum number of days that, uh, of notice that policy holders are given before that cancellation or that non-renewal becomes effective. And so taking a look at that, if you are canceled, your insurance company has to send you at least 10 days, 10 working days notice before canceling your policy for nonpayment, for fraud or that material representation.

Craig Vattiat (09:54):

Um, there is a 30 day advanced notice for cancellation based on other allowable reasons. But for those specific reasons I mentioned, you’re required to be given 10 working days. Notice if your policy is non-renewed, the company has to give you at least 45 working days. Notice. So again, the contract is coming up, they’re not gonna renew you. They’re required to give you 45 days, uh, working days notice there. And that notice needs to explain the reason that they’re not renewing your policy. So if you’re not getting a clear expect, uh, explanation for that, then make sure you ask, um, just a reminder or note that insurance companies must be able to prove that the notice was sent, but not necessarily that you received it. So if your insurance, uh, if your address changes, make sure that you’re letting your insurance company know.