The term confuses insureds, especially when they think of how it applies to health insurance: Based upon the agreed percentage, the insured and carrier will share in the loss up to a predetermined “out-of-pocket” cap, if any. Hence, the two parties “co-insure” the loss.

But move from health to a property policy, and it's time to quote Sondheim: “Send in the clowns!”

One must determine exactly what the requirement is the insured is to meet, decide if it is to apply to ­replacement cost and/or ACV, work the formula (some state license exams now just test on the formula itself, having long despaired of applicant's getting the math right), try to recall if the deductible applies before or after the formula, then check for specific exceptions where the formula does not apply.

Related: Read “Walk the Line.”

That is just direct property. Now try to explain to a frustrated insurance student why you can have coinsurance percentages higher than 100 percent in Business Income forms. The same penalty provision also occurs in other forms (BOP, anyone?) under a totally different name, leading many agents to be unpleasantly surprised at claim time.

Then point out that the Agreed Value option coinsurance not only fails to eliminate coinsurance, but actually creates a 100 percent “coinsurance” requirement based upon the agreed value shown in the declarations— assuming the optional provision hasn't expired, in which case the original coinsurance requirements are reinstated.

Got all that? Oh, did I fail to mention that all of these provisions, whatever the name, are built upon the foundational assumption that the original replacement cost valuation for the building (or revenues for business income) is totally accurate? Quoth Aerosmith: “Dream on.”

Suffice it to say that according to valuation experts, a large percentage of commercial and residential buildings are repeatedly found at claim time to be significantly underinsured. Pile coinsurance requirements on top of that and it should surprise no one this house of cards is standing on shifting sand.

Bottom line? We need to free ourselves from this tangled web—now. Why not simply require accurate valuations from experts (not agents) and then require the property to be insured for 100 percent of that amount? In effect, Agreed Value becomes the automatic provision. Then if the insured, for good and valid reasons, prefers to insure for less than the full amount, just raise the rates based upon the coverage purchased. That is already done in alternatives such as Functional Building Valuation and Market Value endorsements. Can't we just charge the proper rate reflecting the risk and forget these confusing, obtuse penalty provisions and calculations?

Noncontributory

I know, the phrase is “Primary and Noncontributory,” but no one has issues with the word “primary,” right?

It's adding “noncontributory” that muddies the waters and turns what should be a placid stroll along the coverage lakeshore into a harrowing slog through the swamps of E&O. As I wrote (“Defining Moment,” AA&B, July 2012), the term is replete with potential pitfalls for the unwary agent and insured, including one major hurdle: Standard forms and endorsements do not define the term.

Thus, your insured is required by an additional insured (AI) to do something that is undefined. Then the agent certifies to the insured and AI that this undefined requirement has been met by a policy or policies that never defines the term. And if we follow the courts when confronted by undefined policy terms and look to the dictionary, what do we find? “Not providing contribution; noncontributing.” Interestingly, there are a number of specific insurance-related definitions for the term, but every single one applies to pension plans. So no help there.

Related: Read “Tailor or Seller.”

Naturally, given this vague coverage requirement shrouded in the mists of ambiguity, no agent would dare to bet his or her agency future and E&O coverage on taking a firm coverage position, right? Wrong, grasshopper. Thousands of agents who should know better regularly issue certificates of insurance confirming the requirement have been met.

While all of this may have been true last year, as of April, ISO released a new revision to the general liability program that addressed and clarified this very issue. The mists have risen, the swamps are drained, the sun is shining in Camelot!

Let us set aside for the moment many of you issued those certificates before the new revisions, thinking the coverage was already there. Others, who only did so feeling bound by those “chains of fools” (pressure from clients and AIs), are possibly praying ISO has now pulled your chestnuts from the fire.

Have they? Here is the wording from the new CG 20 01 04 13: Primary and Noncontributory—Other Insurance Condition endorsement:

“The following is added to the Other Insurance Condition and supersedes any provision to the contrary:

Primary And Noncontributory Insurance

This insurance is primary to and will not seek contribution from any other insurance available to an additional insured under your policy provided that:

1. The additional insured is a Named Insured under such other insurance; and
2. You have agreed in writing in a contract or agreement that this insurance would be primary and would not seek contribution from any other insurance available to the additional insured.”

You have just read the complete endorsement language. Notice what's missing? A definition of the term “noncontributory.” Yes, it is an improvement in that it's now attached to the Named Insured's policy as opposed to relying on the Other Insurance clause of the AI's CGL for primary/excess provisions. And “will not seek contribution” at least is some statement of intent.

But as noted pertaining to the dictionary definition above, saying a policy is “noncontributory” basically means that policy will not contribute. That's just the opposite of saying the policy “will not seek contribution” from other coverage. If anything, the new language introduces an apparent clarification of intent, and then negates it by retaining the contradictory “Noncontributory” in the title and subheading.

Related: Read “No Reruns.”

Now consider that the endorsement only responds if the Named Insured (“You”) has “agreed in writing in a contract or agreement” (no oral agreements, or simply being handed COI requirements on a form suitable for delivery to their agent). And another real biggie, to my view: This endorsement only applies to the CGL. What if there are umbrella or straight excess policies required to meet the AI's coverage limit demands? Those policies also need to be endorsed or analyzed to be certain they will also be “primary and noncontributory” to the AI's CGL and umbrella coverages.

Bottom line? We need to free ourselves from this and other potentially misplaced and misused terminology in favor of clear, concise requirements. In this situation, given the apparent intent of the additional insureds, wouldn't a better, simpler solution be to provide that the Named Insured's policy will be primary (an unambiguous and long-understood insurance term) to those of any additional insureds covered under that policy via the Other Insurance clause of the standard CGL? Now you have improved the previous (and current unendorsed) CGL, which rely totally on the Additional Insured's policy provisions, leaving the situation wide open for misunderstanding and disaster when non-ISO policies are introduced into the mix (see “Defining Moment” for a full discussion). You still have to analyze and deal with the excess coverage layers, but because those policies have long been proprietary this should already be standard operating procedure.

In all cases, lose the term “noncontributory.” Period.

Just throwing off the chains and shackles of these two thorns-in-the-coverage would lift a massive E&O weight from our collective industry shoulders. Plus our insureds will have a far better chance to understand what they can expect come claim time. What better month to grab that grilled dog, hoist that chilled lemonade and in true Braveheart tradition, join in the shout:

Freedom!

Cue the fireworks.