What to Know When Placing Coverage with FAIR Plans

What is a FAIR (Fair Access to Insurance Requirements) plan?

It is a state-mandated property insurance plan that provides coverage for risks unable to obtain insurance in the regular market due to factors such as location, age, type of construction, condition of the property, and claims activity. FAIR plans have been established in 34 states and the District of Columbia.

FAIR plans vary significantly by state and are typically for homeowners, however, some plans are also available for commercial properties. Coverage is limited to specific named perils such as fire & lightning, and often only offered on an ACV (actual cash value) basis. Loss of use, liability, and medical payments are some of the coverages that are unlikely to be included.

Lenders will typically accept coverage under a FAIR plan, but clients should contact their lenders to ensure the coverage will meet the requirements prior to placing it. There are a few options if the FAIR plan coverage does not meet the lender’s requirements. First, find out if the lender will modify their requirements. If not, they can try to obtain a differences in conditions policy to supplement the FAIR plan coverage. Lastly, a new lender that will accept the FAIR plan coverage may need to be obtained.

When placing coverage in FAIR plans, consider the following to avoid Errors & Omissions claims related to these placements:

• Be familiar with the specifics of coverage and eligibility for the state FAIR plans you are placing business with.
• Review the account at each renewal to determine if coverage is available in the standard market.
• Make clients aware of the limit and coverage limitations that apply when placing coverage in the FAIR plan.
• Explain the difference between ACV (actual cash value) and RCV (replacement cost value) to the client when coverage is only offered on an ACV basis.
• Offer alternative coverage options for those coverages that may not be included under the FAIR plan, such as loss of use. If an alternative is not available, advise the client that options may be available elsewhere.
  
• Work with your agency’s attorney to develop a disclaimer and sign-off for clients to confirm that the clients understand the limitations of coverage under a FAIR plan.
  

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E&O TIP: Claim Example – Certificates of Insurance

In this E&O claim, the loss occurred as a result of the insured sending a certificate of insurance (COI) to a bank for a policy that had been cancelled for non-payment of premium prior to the insured sending the certificate.

The client owed some premium, and there was some confusion as to whether the amount already paid would keep the policy in force. A fire ensued, and a total of $3,000,000-$4,000,000 in damages had been claimed. Both the client and the bank made claims. The bank claimed it would not have loaned money for a mortgage ($400,000), but for their reliance on the certificate. The client claimed that they thought the premium was paid, and relied on the certificate as evidence they had a policy in force. The Utica National companies’ opinion was that the bank’s claim was owed, but not the total amount of the client's claim, as they had not paid the full premium. The claim was settled for $1,000,000.

LESSON: Always check to make sure coverage is active before issuing a certificate of insurance.

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RISK MANAGEMENT: Learn How Our Helplines can Help

Policyholders with the Utica National companies have access to two helplines: an Employment Practices Helpline and a Pre-Claims Assistance Helpline.

Employment Practices Helpline

• We have partnered with Jackson Lewis P.C., a law firm specializing in employment law, to provide this service.
• They can offer guidance on what to do if you may be faced with an employment practices claim, provide pointers on developing an employee handbook, advise what employment training is required by law, etc.
• You are not required to carry our Employment Related Practices Liability Insurance to use this helpline.

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Pre-Claims Assistance Helpline

• We have partnered with Wood, Smith, Henning, & Berman, LLP, a national law firm, to provide this service.
• The helpline provides policyholders with up to 2 hours of legal consultation on any matter that could potentially result in a claim under your E&O policy.
• Please note: Claims cannot be reported using this helpline.

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Ready to Help

Are you looking for risk management guidance on a particular topic? Reach out to Tabitha DeGirolano of our E&O team for help at tabitha.degirolano@uticanational.com.

This information and any attachments or links are provided solely as an insurance risk management tool. They are derived from information believed to be accurate. Utica Mutual Insurance Company and the other member insurance companies of the Utica National Insurance Group (“Utica National”) are not providing legal advice or any other professional services. Utica National shall have no liability to any person or entity with respect to any loss or damages alleged to have been caused, directly or indirectly, by the use of the information provided. You are encouraged to consult an attorney or other professional for advice on these issues.