Author: VU Faculty

In another article entitled "Binding Authority Weather Restrictions," we discussed how nebulous (and onerous) some underwriting restrictions can be when they're based on rapidly developing weather conditions. With the recent series of Gulf Coast hurricanes, similar situations arose involving both underwriting and coverage restrictions, one of which appears to violate the policy itself. In this article, we'll further explore what may or may not be permitted by the contract or underwriting guidelines.

"We have a customer in Florida who has a substantial personal lines account. He called a few days ago to add a new vehicle to his policy and the company declined to provide physical damage. I understand not wanting "new exposures," but we have been telling our customers to put all their personal lines with us and we would take care of them and now we can't. It seems companies would consider a personal auto policy as "the risk" and there will be additions and deletions as needed. Do all companies treat the hurricane threat in a similar fashion? Not too sporty for promoting good will."

It is quite common for companies to suspend binding authority or otherwise refuse to assume new exposures when the risk has increased or is about to increase. Such an underwriting moratorium, unless prohibited by regulators, is probably not unreasonable in most cases, particularly where the loss is virtually certain and financial solvency could be imperiled.

However, there is a BIG difference between an underwriting moratorium on new exposures and coverage contractually granted by the policy. Below are some comments from our faculty.

An underwriting moratorium overrides the express provisions of a written contract? That’s a new one on me.

If this is an ISO equivalent policy, the insurer cannot deny coverage granted by the contract. They can certainly suspend binding privileges or otherwise refuse to insure NEW exposures, but they cannot refuse to provide coverage for which they've contracted.

Any insurer writing business in Florida knows the hurricane exposure. If they don't want to add exposure units during such a period of increased risk of loss, then their contract should allow for that. If it doesn't, then the insured automatically has the coverage.

So, I'd agree with the insurer if their policy says something like, "There is automatic coverage for newly acquired autos if you notify us within 'X' days unless we say there isn't, for example, in the event of an approaching hurricane."  Absent that, the insurer MUST provide the coverage afforded by the policy.

There hasn’t been a hurricane yet where this has not come up. The company can say all they want to about not adding a new vehicle, but the bottom line is that the policy provides automatic coverage for newly acquired vehicles...period. Under the standard ISO PAP, a replacement or additional vehicle has the broadest coverage of any auto insured for 14 days and on the 15th day physical damage coverage falls off. 

So, if at least one of the four autos on the policy has physical damage coverage then the additional or replacement auto has physical damage coverage for 14 days. In cases where none of the four vehicles would have physical damage coverage provided, then the ISO gives physical damage coverage for 4 (four) days at a $500 deductible.  

The company may not like this, but it’s automatic in the policy.

If at least one of the existing autos has physical damage coverage, the ISO PAP should at least temporarily extend the broadest coverage to any acquired auto. Just because the insurer doesn't want to assume the risk due to the approaching hurricane, that is no legal basis for denying what the carrier has contractually agreed to provide. Here is what the VU annotated PAP policy has to say about "Newly Aquired Autos."