[Insurance Update] Be Careful What You Write

Features - Business Strategy

Have you ever added language to your written materials that you think helps protect your company? Think again. Those words may come back to haunt you.

July 27, 2011

After 20 years of handling pest control claims and litigation, as well as reviewing a countless number of contracts and other pest/termite documents, it is amazing what comes through our office when reviewing materials received from PMPs.

There have been plenty of articles from qualified attorneys and other respected authors reviewing what should be in your contracts — whether those are clauses ranging from chemical sensitivity, binding arbitration, severability, limits of liability — the list can go on and on.

This is not what this article is about. These are examples of what should not be in your contracts, renewal notices, WDI/O inspection reports and other documents you provide your customers.

Let’s start with the basics. Many PMPs spend numerous hours and dollars putting together what they feel are solid contracts and other documents to protect their company. And I am sure you have read or heard, "Do not do anything to take away from the wording in the contract." That’s smart advice to be taken seriously.

The problem we have seen is that PMPs add wording to forms or documents that come back and bite them when a claim or suit is made by the customer. I’m talking about wording they think helps protect their company, helps the real estate agent, might produce more business or other reasons only the pest professional can explain. (Even though some of these examples might be humorous they are all serious and the intent is to learn from these mistakes.) In the last 20 years the pest management industry has been cognizant about improving the way it does business to reduce its exposures. I hope this helps as well.

SOME EXAMPLES. Let’s look at what should be avoided when altering your documents. The following are real examples of extra wording on documents we’ve seen:

Examples of Wording Added to Termite Contracts (and my comments in parenthesis):

• "Work as specified." (I am not sure what that really means.)

• "Issue warranty." (No matter what you think your contract allows, it is what the customer thinks it allows and I can bet you both don’t have the same "understanding.")

• "Termite-proof residence." (No termites again forever? They showed up later.)

• "Booster treatment." (Yes, it became a minimum specification problem and regulatory issue.)

• "Treat as per graph." (The PMP did not treat as per the graph and paid the claim.)

Examples of Wording Added or Created on Annual Renewals:

• "In order for us to take care of damage to your property, the corrections or repairs need to be done. This is to ensure that you have full coverage…" (The ironic issue here was this contract was supposed to be a retreatment contract only. Also the word "coverage" should never be used in any pest/termite contract. That is an insurance term for policy language. PMPs do not issue policies; they issue contracts. Don’t let the customer, and eventually the courts, be confused between the two.)

• "Annual Service Renewal Inspection Warranty." (This was the title of the annual renewal inspection document given to the customer. The issue here is the word "warranty." The case was about as perfect a case you can have to go to trial. It was a retreat-only contract, the state inspector cleared our insured of any violations, we had an expert also involved — thus the plaintiff basically had no case. The plaintiff’s attorney showed the "Annual Service Renewal Inspection Warranty" to his client. He asked about the word "warranty" and the judge jumped in on the conversation. This usually never happens but this judge decided to get in his two cents. The judge asked the plaintiff what he thought the word "warranty" meant and of course the plaintiff said he thought he had full protection from damages, repair warranty, etc. Twenty-five minutes later the plaintiff wins due to an ambiguous word. The insured didn’t realize this could come back and bite him but learned an expensive lesson.)

• "Our responsibility for repairing new termite damage will be governed by the terms and conditions as stated in the state contract. There will be times and/or con-ditions under which we are not legally responsible to repair new damage, but we will do so because we are morally responsible. In these cases we will be the one to decide." (This is my favorite. Morally responsible? Now I know this insured pretty well and his heart was definitely in the right place when he decided to add this to his annual inspection document. He just did not realize the ramifications of this wording. Another definite issue is that I can assure you the PMP will not be the one to decide, the courts will. This is in suit right now so next year I hope to let you know what happened. Not sure Vegas will give odds on this outcome.)

• "Perfect Pest Control and LIPCA Insurance are responsible for all damages." (OK, it is safe to assume that this is a big no no! This is a serious coverage problem under the terms of most insurance policies. An insured cannot make a promise to pay or reimburse on behalf of the insurer without the permission of the carrier first. Read the general conditions in your GL policy. Pretty standard language. "All damages?" Wow.)

Examples of Wording Added or Created for WDI/O (Real Estate) Inspections:

• "Evidence of termites was minor not causing any damage." (Wanna bet?)

• "Termite damage does not need to be repaired at this time." (When then?)

• "There were no termites found in the house." (Guess what? Termites were found later.)

• "This is a clean house." (I am sure the housekeeper appreciates the kind words but the courts did not think so.)

• "I would never buy this house." (Needless to say the seller of the home was not pleased.)

FINAL THOUGHTS. We stress to our insureds that before they write something extra on their documents to please a customer, real estate agent or some other interested party that they contact our office to get a second opinion. On most occasions they decide not to write anything extra. It is important to get a second opinion from a trustworthy source.

These examples might seem humorous but extra wording can (and will) come back and bite the PMP with needless claims, lost deductibles, affected loss ratios and possible higher premiums. Please be careful.

The author is executive vice president and COO of LIPCA Insurance (www.lipca.com), Baton Rouge, La. E-mail him at amcginty@giemedia.com.