“Insurance rarely fails loudly. It fails quietly, through definitions, territorial carve-outs, and endorsements hiding in plain sight.” – Yehuda Daniel Katz
I wrote in my April 2019 column that there are three primary sources of coverage gaps that can l
ead to claim disputes. First is the failure to identify and/or quantify exposures. Second is the failure to
insure or risk manage known exposures. Third is the failure to quality-control policy deliverables and risk information. It’s the third category that I return to this month.
There’s an expression, “Be careful what you ask for.” In this case, a more cautionary phrase is, “Be careful what you DON’T ask for.” When placing coverage, there
are certain forms and endorsements you will request from the carrier. Howe
ver, there are probably far more endorsements the insurer will provide that you didn’t ask for, many of them disadvantageous to policyholders.
All too often, when an agent quality controls policy deliverables, they focus on the schedule of forms usually included with the policy package. What happens, thou
gh, if there are endorsements included in the package but not listed in the schedule?
This very issue came up in a LinkedIn discussion about three months ago.
Yehuda Daniel Katz of RiskRemedy was asked to review a contractor’s insurance program. The contrac
tor had operated exclusively in Colorado for nearly 25 years with a clean loss history. T
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he Schedule of Forms, at first glance, looked typical, and there were no listed
trade exclusions. However, applying the “RTFP!” principle, buried deep in the policy on page 126 was an endorsement that did not appear on the Schedule of Forms.
The heading of this CGL endorsement in bold capital letters was “CONTRACTORS EXCLUSION – COLORADO EXCLUDED FROM COVERAGE TERRITOR
Y.” Need I say more? The contractor arguably (or not) had no general liability coverage in the onl
y state where they operated. Apparently, this form was not included in the original issuance of the policy but was added at the first renewal and had remained on the polic
y ever since–but without listing on the schedule of forms.
To me, this makes his CGL coverage illusory though, as I wrote in my March 2022 column, the courts seem to think that, if the policy covers something, coverage
isn’t illusory. In his LinkedIn post, Katz makes an astute and true observation that, “Insurance rarely f
ails loudly. It fails quietly, through definitions, territorial carve-outs, and endorsements hiding in plain sight.”
The first response to Katz’s post was from a risk management consultant who raised the question of whether there is any case law addressing a scenario
where an endorsement is not listed on the schedule of forms but included in the policy. The questi
on is whether an unlisted form is still part of the policy and enforceable. This issue has been litigated (more on that momentarily).
Another poster questioned whether notice of the attachment of this form was ever sent to the policyholder. If not, could that effective reduction in coverag
without notice violate the state’s notice requirement? Could it make the endorsement unenforceab
le on the renewal policy? What about subsequent renewals where notice and reasons have never been provided and the form still is not listed on the form schedule?
The answers to these regulatory questions can be researched by reviewing Colorado law, but a cursory look at Colorado § 10-4-110.5 gives me doubts as to enforceability, especially given that we know nothing about why this form was attached.
But to wrap this issue up, let’s consider whether there is any case law addressing the question of whether an endorsement–especially one this exclusionary–is enforceable if it is not listed in the schedule of forms. And, even if not listed, must there be some reference IN the policy itself to indicate the endorsement modifies the policy?
