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STANDARD V. EXTENDED COVERAGE
SOME CONSIDERATIONS
©1997
The
Nature of Extended Coverage
The
Circumstances under Which an Extended Coverage Can Be Given
The Manner
in Which an Extended Coverage is Given
The
Preparation of an Endorsement
The "Standard Coverage Policy" includes within its schedule of exceptions the five (5) pre-printed general exceptions to coverage relating to "Off Record" matters.
The "Extended Coverage Policy" is one in which one or more of these general pre-printed exceptions are removed or deleted. "Full" or "Partial" extended coverage may be the result of market conditions, customs or competition. Local conditions may vary widely within a given geographic area. Extended coverage policies of necessity require adoption and implementation of underwriting standards. Knowledge of their use requires
judgment based on greater experience or education than is necessary when issuing a "Standard Coverage" policy.
In some states the removal of one or more of the pre-printed general exceptions is governed by the rate rules established by the department of insurance or are determined by the payment of an additional premium payment which may or may not be fixed by the regulatory authority. In other states the removal may be done free of charge, although the risk assumed is greater.
The "Extra-hazardous risk policy" or "affirmative coverage policy", in addition to removing the pre-printed exceptions, also provides for coverage which goes beyond the "extended coverage policy" and in many instances changes or modifies the pre-printed exclusions from coverage or the defenses from coverage, available to the insurer under the pre-printed conditions and stipulations. These forms of coverage are usually provided for by special endorsement in commercial transactions.
Note: These types of coverage are not contemplated by "Standard Coverage" premium charges or filed rates and the relationship of reserves to premiums charged is insufficient for the risks assumed under these "special" coverage, i.e., the relationship of reserves to premiums charged under a "standard policy" risk is insufficient when analyzing the risk of loss undertaken when granting "special" coverage. For this reason alone, where permitted, a risk premium should always be charged. Insurance reserves are determined actuarially. The reserves are arrived upon after the compiled historical data is analyzed. Trends of loss/risk ratios are established. Managers, sales representatives and agency representatives alike should recognize this fact. The reason the underwriting department suggests a risk premium should be charged is because they have available to them the industry wide claims data of known extra-hazardous risks which result in significant losses.
Note: In the title business we do not expect to have substantial losses as part of our underwriting and our title charges are determined accordingly. When we issue a title policy which includes "special" (extra-hazardous risk) coverage, we (the company) assume liability where there is greater risk than occurs under the usual "standard coverage" exposure. In these instances, and, because the special coverage granted change the defenses available to the insurer under the policy, the resultant loss may be for substantially greater amounts than would be sustained under a "standard" policy.
The Nature of Extended Coverage:
Standard coverage is that which is afforded to the insured by the title insurance policy form which is normally issued by the Company in the area where the land is located and usually includes as exceptions to title those pre-printed exceptions which appear in Schedule B-2 of the Commitment for Title Insurance which are not otherwise removed at the closing table by way of affidavit of title or otherwise.
An extended coverage occurs when the Company voluntarily assumes or incurs a greater obligation or liability to an insured than it would have incurred under the Standard Coverage Policy Form.
NB at this point it is important to point out that while the alteration or modification of the policy form in any way does constitute extended coverage, the addition of affirmative statements of fact may not constitute an extended coverage.
yway, such as by the deletion of the general survey exception.
The Circumstances under which an Extended Coverage Can Be Given:
The risk assumed by a particular extended coverage must be within the types of risk which the Company has the legal right to assume.
The Company's charter and the licenses issued to it by the various states to do business limit the nature of the risks which the Company can assume.
The risk assumed by a particular extended coverage must not be substantially greater than those which the Company believes are justified by the premium rates it charges and the reserves which it establishes.
The Company's experience has demonstrated that, if adequate investigatory procedures are properly conducted, the present relationship of reserves to premiums charged is sufficient for the risks assumed under standard coverage.
If the risk assumed by the grant of an extended coverage is substantially in excess of that incurred by standard coverage, the Company has no experience by which it can justify the amount of additional premium which should be charged, or that part of the additional premium which should be placed in reserve.
The grant of an extended coverage to a particular customer without an additional charge may constitute an unlawful rebate, unless the Company is willing to grant the same extended coverage to all customers without charge.
The manner in which an extended coverage is given:
An extended coverage frequently is given by deleting, or by failing to insert, a particular general exception in Schedule B. This is not the recommended procedure. The following procedures are the preferred method. For more information refer to Title Insurance Underwriting Principles and Exception Language and the sections entitled "Insuring Around", "Affirmative Coverage" and "Use of Escrows when insuring over Special Exceptions".
An extended coverage also is given by adding a special insuring clause to a particular general or special Schedule B exception.
An extended coverage also is given by the attachment to the policy of an endorsement which states the nature and extent of the extended coverage.
The preparation and issuance of an endorsement which gives an extended coverage:
A printed Company form applicable to the requested extended coverage should be used whenever possible.
The advantages in the use of a printed form are:
-
Underwriting
instructions have been formulated for the circumstances under which
the form may be used, and for the investigatory procedures which are
required;
-
The
statements in the form which afford the coverage have been carefully
chosen to avoid ambiguities;
-
The
form of coverage may be determined by either case law decisions or
state insurance department regulations
The form may not be
altered in any way without the approval of divisional or regional
counsel unless the underwriting instructions for the use of the form
authorize alteration.
Extreme care should be used, nevertheless, to be sure that the printed form is applicable to and doesn't give more or a different coverage than the coverage which is requested.
The printed provisions of Form "Blank Endorsement" may not be altered in any way without the approval of underwriting department, e.g. changing date of policy may incorporate additional liability not compensated for.
The effect of state insurance laws and regulations must be considered before any endorsement which grants an extended coverage is issued.
It cannot be assumed, because the Company has a printed form affording an extended coverage, that this form has been approved for use by the insurance commissioner in each state in which the Company does business.
If a blank endorsement form is used to afford an extended coverage, it is possible that prior approval of its use by the state insurance commissioner may be necessary, particularly if an additional charge is being made for its issuance.
No special coverage should be issued on a blank endorsement form which circumvents coverage on a filed endorsement form without obtaining the approval of the underwriter.
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