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Why does it matter how my business policy is “Classed”??

The excerpt below is from the ISO BusinessOwners Common Policy Conditions. This is included in pretty much every BOP (BusinessOwners Policy) as well as most Commercial Packages.

“C. Concealment, Misrepresentation Or Fraud
This policy is void in any case of fraud by you as it relates to this policy at any time. It is also void if you or any other insured, at any time, intentionally conceal or misrepresent a material fact concerning:
1. This policy;
2. The Covered Property;
3. Your interest in the Covered Property; or
4. A claim under this policy.”
 

Why, then, is it important for you as an insured to know how your policies are classed?

Each insurance policy is “classed” based on the exposures that exist within your operation. The insurance industry has come up with a set of codes that we use to attach to your specific business operations based on what you do. Each class has a “scope” that includes a set spectrum of operations and activities that would fall into each classification.

Some insurance agents will attempt to improperly classify a risk in order to reduce price or fit it into a specialty program with competitive pricing. This sometimes goes beyond “thinking outside the box” and enters into a situation that might fall into the above condition, potentially resulting in a “voided” policy.

Additionally, applications for insurance are a very important part of classifying a risk. The statements you make on the application directly impact how an insurance company classifies your operations. As a result, it is imperative to be truthful and complete in your answers on the insurance application. In many cases, courts have decided that misrepresentation or providing false information on an insurance application is sufficient reason to deny payment of a claim.

We sometimes run into cases where a prospect’s current policies are classed in a way we feel does not accurately reflecting the real exposures of the operation. In that case, we cannot in good conscience offer coverage under those old classifications. At times, this may put us at a pricing disadvantage but we believe that the long term benefits of properly advising our clients far outweigh the short term benefits improperly classing a risk.

We take our job seriously and we take protecting our client’s business seriously. The more you know about your exposures and coverage, the more successful and protected your business will be.

By: Patrick F. Baggett
Vice President Commercial Lines
pbaggett@fullserviceins.com
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