CL 0100–AAIS COMMERCIAL LINES
COMMON POLICY CONDITIONS
(August 2019)
INTRODUCTION
Most American Association of Insurance Services (AAIS)
commercial lines policy require attaching CL 0100–Common Policy Conditions. It
contains five conditions:
1.
Assignment
2.
Cancellation
3.
Change,
Modification, or Waiver of Policy Terms
4.
Examination
5.
Inspection and
Surveys
This analysis
is based on the 01 18 edition of this form. All changes from the prior edition
are in bold.
1. ASSIGNMENT
This policy cannot be assigned. The only exception to
this condition is when the insurance company provides its consent and even then,
that consent must be in writing.
This is a
condition necessary in order to guard the integrity of underwriting. The named
insured is the starting point of all underwriting. If the named insured changes
through assignment, a complete re-underwriting of the account must occur. The
exception to this condition allows the insurance company to permit such
assignment after it has been able to review the request.
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Example: Nancy, Becky, and Lyla own
a business named NBL, LLP. Scenario 1: Their financial manager is recommending
that they incorporate and change the name to NBL, Inc. No other change is
occurring but NBL, LLP would like to assign its policy to NBL, Inc. The
underwriter reviews the request and agrees to the assignment without any
change in the policy. Scenario 2: Nancy, Becky,
and Lyla want to walk away from the business and Charlie has offered to buy
it. In order to make the deal happen quickly, he asks that they assign the
NBL, LLP policy to him. Because of this condition, any assignment NBL, LLP
makes is not valid and will void coverage. |
Related Court Case: Assignment of Policy Is Not Valid Without Insurer Consent
2. CANCELLATION
This condition explains how cancellations are handled.
Many states require using a mandatory state form in place of this cancellation condition,
but this is a good starting place.
The named insured can cancel the policy. If there are
multiple named insureds, each one has the right to cancel because there is no
condition limiting that right to a specific named insured.
The named insured can cancel coverage by returning the policy
to the insurance company. It can also cancel it by writing to the insurance company
and providing the date on which cancellation is to take place.
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Example: Heidi and Jack are partners, and both are shown as
insureds on their insurance policy. Heidi sends a request to the insurance
company to cancel the policy without telling Jack. When a loss occurs and
there is no coverage, Jack has no recourse against any party except Heidi. |
The insurance company can cancel by mailing or delivering
a written notice to the named insured. It must be mailed to the latest mailing
address the insurance company had been given. The notice must state the exact
date on which the cancellation is to be effective. Proof of mailing is required
but a signed receipt is not.
The insurance company notice must give the named insured
at least 10 days’ notice when the reason for cancellation is nonpayment of
premium.
If the cancellation is for a reason other than nonpayment,
the insurance company must give the named insured at least 30 days’ notice.
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Example: Dravens, Inc.
receives a notice of cancellation from its insurance carrier. It was mailed
on 3/1/19 with the cancellation to become effective on 3/28/19. Scenario
1: The
reason for cancellation is nonpayment of premium. The cancellation is
effective 3/28/19. Scenario
2: The
reason for cancellation is failing to resolve loss prevention
recommendations. The cancellation cannot go into effect because the notice
period is too short. The policy continues in force. |
The named insured receives a
return premium when the policy is cancelled. The return premium is based on the
insurance company rules. This means it may be prorate,
short rate, or another type of calculation but it must be consistent for all
named insureds.
The cancellation is in effect
even if the named insured did not receive the return premium.
Related Court Cases:
Cancellation Held
Not Effective When Notice Addressed to Previous Insured
Cancellation
Validated by Proof Mailing of Notice
Cancellation Notice
to Address of Record Held Valid When Insured Failed to Report Move
Was Cancellation
Notice Timely?
3. CHANGE, MODIFICATION, OR WAIVER OF POLICY TERMS
The policy that the insurance company issues represents
the agreement it makes with the named insured. If the named insured requests a
change to that policy, the insurance company has the right to accept or reject
the request. Because the insurance policy writes the policy it also determines
what changes can be added to the policy. However, these changes are not meant
to be kept secret. Therefore, any change made must be in writing and issued by
the insurance company.
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Example: Nellie sends an email to her agent notifying him that
she just bought a new tractor and asks that it be added to her policy. She
assumes the email was received and never follows up. The tractor is destroyed
in a windstorm and Nellie sends a claim notice to the insurance company. The
company denies the claim because the tractor is not on the policy. |
Related Court Case: Handwritten Changes to Declarations Create Coverage Dispute
4. EXAMINATION OF BOOKS AND RECORDS
Note: Under the prior edition this was item 5. No other change
has been made to this condition.
The insurance company has the right to review the named
insured's books and records. However, this right is restricted to only the ones
that relate to this policy. This right extends throughout the policy term and
for up to three years after.
Related Court Cases:
Church Financial Records Held Subject To Review by Insurer
Claimant Must Submit To Examination Under Oath And Produce Records Requested
5. INSPECTIONS
Note: Under the prior edition, this was item 4. This is also
the only condition that was significantly changed in this edition. The
condition has changed from one paragraph to four separate paragraphs.
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Example: Pretty Interested Insurance
Company inspects Unity Plus. The loss prevention specialist is very impressed
with the many innovations in the building and overlooks some of the very
basic life safety features that were compromised by the innovations. When a
fire occurs and lives are lost, Pretty Interested Insurance cannot be held
liable because its employee failed to notice the life safety failures. |
There is a proviso. If an inspection is made that is related
to boilers, pressure vessels or elevators in order to gain certifications from
the state or municipality, the prior wording in this item c. does not apply.
Related Court Cases:
Loss Prevention Representative Did Not Have
Duty to Make Specific Inspection
Safety Inspections for Underwriting Purposes
Held Not To Create Liability For Insurer