Those Pesky Knowledge Gaps in Insurance

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Why is it that so very many underwriters and agents seem to be lacking in absolutely critical concepts that drive the insurance transactions?

It seems to me that there is no in-house or out-house training in this subject matter, and no oversight to be sure the employee has grasped the concepts and is applying them correctly.  Sure, there are the CPCU and CIC curricula.  But other than a couple of Ruble Seminar advanced topics with CIC, I’ve not seen more than a passing treatment of these types of legal concepts.

Could it be that the employers themselves are ignorant of what is needed?Could it be they assume everyone already knows the basics of business law and knows how to apply them?  Maybe they assume their employees will pick it up by osmosis.  Maybe they haven’t thought through the types of problems that are caused by the mistakes and inaccuracies that arise from the lack of knowledge.

Here are two examples of such problems:

I have at least twice had insureds who put their DBA on the application where the “Applicant” or “Named Insured” or whatever the carrier may call it was supposed to go.  This was unbeknownst to the agent in both cases.  In one, a claim was brought against the actual entity, and turned in to us.  It took three weeks of arguing with the carrier to get them to accept the claim, because they knew nothing of the actual entity and had only the DBA in file.  In the more recent case, the insured advised the agent 10 months into the policy period that he was no longer using the DBA, and he wanted his policy changed to reflect the legal entity name. 

It took several rounds of negotiation and several explanations to get that name changed.  The underwriters wanted to put the “new entity” on the policy retro inception.  It was not a new entity!  It was the entity that should have been the insured all along.  We just didn’t know it.  It did not help that the insured kept referring to this as a “name change”.  It was not a name change.  It was the correction needed to recognize the legal entity that is and was intended to be insured, and which should have been reflected on the policy initially.

I have seen some applications that ask for the “legal entity” to be insured, and that can avoid these issues.  But if the application submitted doesn’t use the “legal entity” terminology, how can we be assured that the information provided is accurate?  Well, here’s a tidbit for you.   The lack of a “Inc.”, “LLC” or other organizational form indicator in the name of the insured is a big clue that the name being provided is a DBA.  If the insured is presenting as “Acme Industries”, it is probably Acme Corp, Acme, LLC; Acme, Inc., or some other organizational form, DBA “Acme Industries”.  It could be an individual DBA Acme Industries as well. 

By law a business must display its organizational form in its business name, unless it is using a “dba”.  And the indicator must accurately reflect the form.  So if you receive an application that says Acme, Inc. DBA: Acme, LLC, that would be a red flag.  A corporation cannot “do business as” an LLC.  Think about it for a while, and you’ll come up with several reasons why not.

If you receive an application that says John Smith DBA: Acme, LLC, that would also be a red flag.  John cannot do business as an LLC unless he has formed one, and then the business IS the LLC.  The LLC is not a “dba”.  

In many, many jurisdictions, DBAs are filed with the State or County with some exceptions to the filing requirement.  In California, for example, one needn’t file a DBA if one is a sole proprietor and the chosen business name includes your last name.  So if I had a business that I wanted to call Chris Christian’s Fitness Center, I would not need to register that as a dba, or “fictitious business name”.  If I wanted to call it The Best Fitness Center, I would need to register it.

In some other jurisdictions, there is no need to register dbas at all.  But the lack of that organizational form indicator is a dead giveaway that the name you’ve been provided is exactly that — a name.  It is not an entity.  A name cannot be insured.  Only an entity or person can be.  A name cannot be the proper subject of a lawsuit.  Only an entity or person can be.  A name cannot own property, incur debts or make a contract.  Only an entity or person can.   Therefore, a name should not be the Named Insured.  One would think that getting this right would be very basic, but it is constantly and consistently missed.

I can’t help but think that if my colleagues in the industry understood these things, they would of course want to get them right.  But maybe my outlook is too optimistic, at least according to the main character in example number two, which will be the topic of my next post.

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