Another source of insurance for inventory physical damage is via various Lloyd’s of London contracts; indeed, Lloyd’s contracts have become the vehicle of choice for many, if not most, Texas Independent Auto Dealers.  They lend themselves to more individually designed insurance programs to fit unique dealer operations.  For instance, coverage may be applicable only to vehicles on which there is a lienholder interest or, perhaps, only to vehicles valued at a dealer-selected amount, or any number of out-of-the-ordinary dealer requests.  The Lloyd’s policies with which I am familiar all include a supplemental coverage option; the Supplemental Coverage definition includes riot or civil commotion as a specifically named covered peril.  Again, you must review your policy to be certain that Supplemental Coverage is included and has not been adversely amended via any contract endorsements. It would be extremely rare to have riot and civil commotion as a designated excluded peril. 

Nutshell: If your insurance program includes inventory physical damage coverage, check the listed covered perils and then review all endorsements related to those perils. 

What about your buildings and their contents?  Standard property contracts come in three varieties: 

• Basic Causes of Loss
• Broad Form Causes of Loss
• Special Causes of loss

Basic Causes of Loss provides the most restrictive list of covered perils and it includes riot and civil commotion as a named peril.  Broad Form follows suit with a couple of additional listed perils and Special Cause Forms provide the most comprehensive protection available.  Again, there can be endorsements and/or amendments to the contract limiting or excluding losses due to certain exposures and, again, it would be unusual to see a riot and civil commotion indicated as excluded.

            Lloyd’s property policy forms offer a larger challenge in that there are multiple forms that can vary greatly from syndicate to syndicate.  Although my experience indicates riot and civil commotion is generally a covered peril under Lloyd’s contracts, I encourage review of each policy, with a careful eye toward the named perils, endorsements and exclusions.

Of course, non-TIADA members who call us with varied questions regarding their operations are not particularly concerned with TIADA’s political benefits – they are looking for concrete answers – which brings me to the meat of TIADA’s value to the industry on a day-to-day basis.  Near the top of the list of inquiries involve compliance situations.   Whether questions involve taxes, insurance, title, OCCC, repossession and – most recently- COVID 19 effects on your business, there is a Compliance Team Member available to listen, to share facts and discuss your concerns.  Right now – today – there is up-to-date information on TIADA’s COVID 19 Resource Page.

Education is huge among the benefits available via TIADA.  If you are a new dealer, there are classes on How to Become a Dealer.  As TIADA members, dealers enjoy substantial discounts on statewide Education Seminars.  New members may qualify for up to a 50% discount on an education class of their choice as part of the enrollment package.  Seminars are a primary part of the annual TIADA Conference and Expo; the upcoming one is currently scheduled for mid-August in San Antonio. 

We can’t leave the topic without mentioning the auction savings on-tap every day for TIADA members .. in fact, over $7,000 in savings at over 45 auctions statewide.   The discounts can range anywhere from $75 to $250 off the buy/sell fees and, when taken into consideration in evaluating annual TIADA dues, they virtually eliminate the cost of membership.

Now, we come to one of my favorite membership highlights – Texas Dealer magazine.  This monthly publication includes articles pertinent to every dealer’s operation, as well as auction directories and pages of helpful information designed for Texas Independent Auto Dealers.  I look forward to the Texas Dealer so I’m informed as to what my dealer clients are talking about and/or need to know.

Typically, the losses created by COVID-19 are not the direct result of property damage – such as a hurricane, fire, tornado, explosion; rather they result from people prevented from working, shelter-in-place orders; people unable to purchase vehicles and/or pay for vehicles already purchased , etc. None of these constitute the property damage necessary to trigger BI/EE benefits.

Physical loss requires that property be altered/damaged in some manner and the presence of virus molecules on surfaces does not rise to the level required. There have been some who suggest that gases, odors, etc. could contaminate property without any visible damage. They further this argument by stating that the virus is a contaminant. This argument becomes a bit far-fetched when you realize an investigation would be required to prove the virus actually touched the property to create property damage. 

Add to the above, the specific virus or bacteria exclusion endorsements included in most, if not all, property policies and the long answer is also ‘no’.

The purpose of a policy audit is to verify the company has collected a proper premium based on the exposure assumed. The premise under which a liability contract is written assigns the initial premium as a deposit premium only, based on estimated sales, rating units and/or payroll; the audit confirms the estimate or determines either an over or under payment. Policy language determines whether or not over-payments are returned; however, under-payments are almost always billed and collected. 

There are two types of audits – self-prepared and on-site. The self-prepared audits require only that you provide a written response to whatever information is required, whether it is sales, payroll or employee list. If you promptly comply with the company request, these audits are usually smooth with little conflict or operation upset.

As a further safeguard, I encourage my clients to always send a copy of the self-audit to our office for review before sending it to the carrier. This allows our in-agency underwriter to review the material and to advise the client what to expect as a result of the information provided. The on-site audit involves larger premium accounts, as well as certain industry types.

The initial audit procedure involves a notice that your account has been selected for audit, either on-site or self-prepared. More often than not, the notice comes directly to you from the carrier with a copy to your agent. Sometimes the on-site notice will include the name of the auditor assigned; other times, it will say only that you will be contacted by an assigned auditor.

My experience suggests that insureds who contact their agents once they have heard directly from the assigned auditor fare better than those who don’t. Just reviewing the process and the steps to be taken allow the insured to have a better event.

But let’s take a step below the surface considerations and look at what is probably the most important factor, i.e. financial strength of the firm. AM Best, an independent company that rates insurance companies based on their financial viability, sets the standard for the industry. Being an “admitted” company does not guarantee the best financial rating, rather it guarantees the limited protection of the Guaranty Fund. So, what are your protections as a policyholder with a member of the Texas Guaranty Association?
Most Claims – $300,000 maximum payment
Workers Comp – No Limit
Unearned Premium – $25,000 per policy
Assuming those limits are ample for your situation, more “gotchas” could come in the waiting game. A policyholder may wait years to be refunded money owed or be held up in legal battles if in the middle of suit at the time of the insurer’s bankruptcy. Insureds have faced their own bankruptcies while managing claims made by their customers under an insolvent insurance company’s policy.
A common misconception is to believe non-admitted carriers are riskier to do business with than admitted ones. The bottom line is the financial status of the company determines the risk, rather than the admitted-non-admitted classification. With regards to Underwriters at Lloyds of London, both admitted and non-admitted are inadequate terms for describing their operations. While Underwriters at Lloyds are not members of state guaranty funds, most states have separate legislation with regard to them, and state insurance commissioners maintain separate financial information for Lloyds’ business. Information in that regard can be found on the Internet under “Lloyds American Trust Fund.” Additionally, the Texas Surplus Lines Office has substantial financial data available on-line not only relating to Underwriters at Lloyds, including individual syndicates, but also most non-admitted carriers.

Regardless of whether a carrier is admitted or non-admitted, the best gauge for determining the security of one’s policy and its potential effect on their financial future is to check the financial rating of the insuring company. Once that has been done, then explore the various policy provisions to determine what carrier is appropriate to your unique situation.

There was a time that garage policies included weather losses with, maybe a $1,000 per car, and an aggregate of some kind. When I began my career 30 years ago, that aggregate was often $5,000, i.e. 5 cars with a deductible and then no deductible for the balance. Then those aggregates inched up to $10,000, $25,000, $50,000.

Today insurance policies in Texas with physical damage aggregates have gone the way of the dinosaur — at least in the hail prone counties. With the current weather conditions, it seems all Texas Counties are hail prone. I don’t want to say weather loss aggregates don’t exist, because there are some out there under the right circumstance and at the right price, but they are few and far between.

Disaster losses are never pleasant, but some are much more painful than others.