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Last Post 07/21/2012 9:08 AM by  sbeau4014
Difference In Conditions Policies
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Medulus
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07/12/2012 2:04 PM

    The company for which I work writes a Difference in Conditions (DIC) policy for earthquake and flood.  I first encountered DIC policies while working hurricanes Dennis and Katrina.  I had been an adjuster 15 years before seeing my first DIC policy.  I find that, over and over again, when I assign a claim I first have to explain to the adjuster what a DIC policy is and how to read it for coverage.  This applies even with adjusters who have 20+ years of experience.  I think we  may be seeing more and more of these policies, expecially with regard to Commercial Windstorm coverage.  So, I'm wondering how many CADO-ites have worked with these policies and what your experience has been.

    For those who have never seen a DIC policy, suffice it to say that this is a different animal.  It is technically an All Risk Inland Marine policy designed to cover a single peril (or sometimes two perils as in my company's policies) which is excluded under commercial property policies.  So, for instance, if the policy is designed to cover windstorm it will start by stating that it covers all perils not excluded.  Then it goes on to attempt to exclude anything else that might possibly happen except the peril it is trying to cover.  It is not unusual to have 30 or more excluded causes of loss on a DIC policy.  And some of the exclusions may seem highly unlikely.  A DIC policy often excludes asteroid strikes, geomagnetic storms, railroad collision, and other unlikely scenarios.  Sometimes they even seem to exclude the peril they are insuring against.  For instance, a DIC earthquake policy will likely exclude earth movement, but then state that it does not exclude earth movement caused by an earthquake. 

    The first time I encountered one of these policies I wasted a lot of time analyzing all the property exclusions (there were twenty some kinds of property excluded), then moving on to the excluded causes of loss (more than 25 excluded) and pretty much drove myself nuts trying to make sure the loss was not excluded only to arrive at the end of the policy where windstorm was defined and figured out that, even though an exclusion might apply, that there was coverage after all because it fit the definition of windstorm.  Now I begin by telling the adjusters I hire to look at the dec page and see what the policy covers.  Then skip over the rest of the policy and determine whether the cause of loss fits the definition of that peril.  If it does, then the excluded causes of loss are probably moot.  If it does not fit the definition of the covered peril, then look to the exclusions and see if this loss is excluded.  It is, after all, an "all-risks not excluded" policy, so the loss might have slipped between the cracks of the exclusions.  For instance, I haven't seen one yet that excludes Zombie Apocalypse.  I pointed this out to our assistant vice president of DIC Underwriting last week and she told me (tongue in cheek, of course) that she would have to look into fixing that oversight.

    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    Leland
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    07/13/2012 2:35 AM
    I see DIC policies designed to complement DP1 policies, to add the coverages that the DP1 doesn't have.

    Here's how those work:

    The homeowner can't buy an HO3 because they live in a fire zone.

    They buy a DP1, which is limited to named peril only: fire, vandalism, explosion, smoke etc.

    Unlike an HO3, the DP1 does not cover theft of personal property; doesn't have liability coverage; doesn't cover bursting water pipes etc.

    The homeowner then purchaes a DIC policy (from a different carrier) which is actually an HO3 policy, but with an endorsement that says it doesn't pay anything that is covered by the DP1.

    So the DIC policy says in the main form that it covers fire, vandalism, explosion, smoke etc. but the DIC endorsement takes those coverages away. So the HO3 with DIC endorsement ends up covering normal HO3 things like stolen personal property without duplicating the things already covered by the DP1.
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    Linda
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    07/16/2012 12:00 PM
    Steve, I remember the first DIC policy I handled. The ONLY covered peril was "ponding water." Like you, I read the policy front to back and at the end of the day the only covered peril was the ponding water on the flat roof. They are becoming more and more prevalent for all sorts of perils we normally would not encounter.
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    Medulus
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    07/17/2012 10:47 AM
    Sort of makes you wonder who sat down with their broker and said, "Hey, what we really need is a 'ponding water' policy."
    Steve Ebner CPCU AIC AMIM

    "With great power comes great responsibility." (Stanley Martin Lieber, Amazing Fantasy # 15 August 1962)
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    sbeau4014
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    07/21/2012 9:08 AM
    I have dealt with a lot of DIC policies in my years mainly as a staff adjuster/mgr but also as an IA. There have been and are numerous ones out there both through ISO and ones written specific to an individual insurance company which generally track similiar to the ISO version. I have even seen manuscripted DIC forms for larger accounts that are written to the clients specific needs/wants just like your last comment Steve. Had one on a large manufacturing/service industry in the East/SE during Floyd that only provided flood coverages for their numerous locations, but also got very specific in which locations would qualify based on the current FIRM mapping. A basic read would lead one to believe the location and peril involved were covered, but it turned out to be denial in excess of $15,000,000. You are correct Steve in that when dealing with them, you need to do some education for the IA (or staffy if they aren't used to working with them) to make sure they know how they work, and also give them a copy of the actual form so they can see how they read.
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