An agent writes, "One of our carriers has added this paragraph to our agency contract regarding binding authority:

The Agency shall have no authority on behalf of the company to provide new coverage or increase existing coverage when the National Weather Service has issued a tornado warning, tropical storm watch or warning or hurricane watch or warning for an area within a 200-mile radius of the risk location. This restriction applies during the time period beginning with the issuance of the above-listed watches or warnings and ending 72 hours after the expiration of the above-listed watches or warnings.

"Our agency tries to have the underwriters bind the coverage whenever possible; however there are times our producers need to either bind a new risk or increase coverage without talking to the underwriter. Often these risks are several states away. We are struggling with the task of getting all of our binding authority at the desktops of our producers and CSRs. Do you have a suggestion on how to handle this entire project?"

This is a timely question. Between spring storms and floods (where such coverage is provided), summer tornados and fall hurricanes, it is important to understand one's binding authority. The example you give unquestionably makes this very difficult for multi-state operations. We ran this by the Virtual University faculty and the following is one of several responses:

“This kind of restriction is perhaps reasonable if you're talking about hurricanes since they're known well in advance and covered widely in the news but a tornado warning? Is this really such a problem? Have they had instances where they paid property claims for tornado damage and discovered after the loss that it was bound only minutes before the loss? There are lots of problems here if you want to be really thorough about it.

1. The contract wording should be clarified by saying (if this is what is intended) that no new coverage or increase can become effective at a time (presumably 12:01 a.m. in all cases) which is within the "blackout" period. 
2. Does an official warning of this kind clearly define an exact geographical area, so that the 200-mile radius can be exactly compared with it?
3. Does new coverage or an increase mean just either a totally new policy providing any property coverage whatsoever, or an increase in the limits of an existing policy that provides any property coverage? New coverage or an increase in coverage could mean any change in the policy, such as an endorsement that broadens or expands it in any way, regardless of whether or not it has to do with the windstorm peril.
4. Assuming the whole scope of the restriction on the agency's authority can be more clearly defined, the problem then becomes how to avoid violating the restriction without spending inordinate amounts of time and money finding out what is going on, exactly where and when with regard to storm warnings. One way to deal with it in the binder might be to say something like: ’This binder is subject to certain limitations on [the agency's] authority to provide coverage with reference to windstorm perils while official warnings are in effect.’ But this might have to be filed if binders are considered forms that have to be filed, and then it might not be approved.
5. If I were the agency, I would try to negotiate a provision that says something like: ‘I am not liable if I inadvertently violate the restriction as long as I made a good faith effort to comply with it.’

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Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University. If you do not know your Big "I" website user name and password, email logon@iiaba.net to request your login.