CL 0100–AAIS COMMERCIAL LINES COMMON POLICY CONDITIONS

(December 2018)

INTRODUCTION

Most American Association of Insurance Services (AAIS) commercial lines policies require that CL 0100–Common Policy Conditions be attached to complete the policy. Specifically, it is to be used with the following lines of business:

• Agricultural General Liability
• Agricultural Output Program
• Commercial Crime
• Commercial Output Program – XL
• Commercial Output Program
• Farm Inland Marine
• Inland Marine Guide

The CL 0100 contains five conditions:

1. Assignment

2. Cancellation

3. Change, Modification or Waiver of Policy Terms

4. Inspections

5. Examination of Books and Records

1. ASSIGNMENT

The policy is underwritten and issued based on the information provided by the named insured on the policy. The insurance company will not permit that named insured to assign the policy to another without its written permission because the insurance company must have sufficient time to determine if the new named insured meets its criteria.

Example: Afia decides to sell her small business to Harland. She is turning over all assets, inventory, and employees. Harland is even going to use her accountant. Afia agrees to turn her insurance policy over to him too but her agent explains that she does not have that option. Her insurance company will not permit assignment, so she must cancel her policy on the date of transfer and Harland will need to purchase his own policy.

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. 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 has the right to request the insurance company to cancel the policy. This can be done in one of two ways. The named insured can return the policy to the insurance company or it can simply write to the insurance company and tell it when, in the future, the policy is to be cancelled.

Example: Afia’s policy runs from 01/01/18 to 01/01/19 and Afia’s contract with Harland requires that the business transfer to him on 11/1/2018.

Scenario 1: Afia writes a note to her insurance company on 9/1/2018 to cancel the policy on 11/1/2018. Cancellation will be effective on 11/01/18.

Scenario 2: Afia forgets to notify her insurance company about the transfer. On 12/1/2018 she receives a renewal policy dated 01/01/19 to 01/01/20. She immediately sends the renewal policy back and then requests that the current policy be canceled back to 11/1/2018. The renewal is cancelled flat. However, the cancellation date on the current policy will not be any earlier than the date on which the insurance company receives the request.

The insurance company can cancel by mailing or delivering a written notice to the named insured at its last known address. The notice must be either mailed or delivered at least ten days prior to the cancellation date when the reason for cancellation is nonpayment of premium. The named insured must receive at least 30 days notice if the cancellation is for any other reason. This notice must clearly state the date of cancellation because it becomes the policy period's end date.

Example: Expect the Best Insurance Company mails a notice of cancellation to Less Than Perfect Insured on 12/15/18 to be effective on 01/01/19.

Scenario 1: The reason for cancellation is nonpayment of premium. The cancellation is effective 01/01/19.

Scenario 2: The reason for cancellation is uncooperative spirit. 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 will be calculated in accordance with the insurance company’s rules. The cancellation is in effect even if the insured did not receive the return premium.

Proof that notice of cancellation was mailed is all that is needed to effect cancellation. Proof that the first named insured actually received the notice is not required.

Related Court Cases:

Cancellation Held Not Effective When Notice Addressed

Cancellation Validated by Proof Mailing of Notice

Cancellation Notice to Address of Record Held Valid

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, the insurance company has the right to accept or reject the request. An endorsement that amends, waives, or changes any part of the policy must be attached to the policy in order to be valid. Verbal changes on either party’s part is not binding.

Example: Kelly called his agent, Josh, to discuss the latest basketball game. They got into quite a discussion but just before they signed off, Kelly remembered to tell Josh about the new tractor he had just purchased. Two months later the tractor is destroyed in a fire and Kelly sends in a claim. Josh does not remember the conversation and Kelly cannot prove the conversation took place. Because no endorsement was added to the policy, there is no coverage for the tractor.

Related Court Case: Handwritten Changes to Declarations Create Coverage Dispute

4. INSPECTIONS

The insurance company has the right to make inspections and/or conduct surveys. It then may also provide reports and recommendations to the named insured.

This right is intended for the insurance company’s benefit. The inspections and surveys are not safety inspections for the benefit of third parties or employees. They are not to be viewed as a warranty or a representation that the named insured complies with any safety or health codes.

This condition applies to the insurance company that provides coverage as well as to any rating advisory organization.

Example: Moira, the safety director at Patients Plus, is excited when the Harvest Insurance Company inspects the property because she wants to force some changes in the operations. She is very disappointed when only two minor recommendations are submitted. She demands a more thorough inspection and is told that the inspection is for the insurance company’s benefit, not the insured’s.

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

5. EXAMINATION OF BOOKS AND RECORDS

The insurance company has the right, but not the obligation, to examine and perform an audit of the named insured’s records. There are limitations on the examination though. It must be related to the policy and only records that apply to the policy period are required to be supplied. The insurance company may request such records at any time for up to three years after the policy period.

Example: Marion’s policy period ends on 4/1/19. She expects a return premium so is anxious for the insurance company to audit her books and adjust the premium. The insurance company decides not to examine or audit her books. Marion can complain but she has no right to demand an audit.

Related Court Cases:

Church Financial Records Held Subject To Review by Insurer

Claimant Must Submit To Examination Under Oath And Produce Records Requested