Why is this so Important?
The Description of Operations describes the Activities, Products, Business types or categories, Property type and Professions, you are covered for. It forms the basis of the policy and is one of the most often, incorrect part of the policy.
To put it simply, if the Description of Operations does not list or state all the things that you do or sell, the type of property and what it is used for, your probably not covered. It’s also one of the first things the adjuster looks at to determine if the claim is covered.
Examples of Operations: A Contractor is insured for installing siding under the Description of Operations. His customer asks him to install shingles on the roof of the house. The Contractor agrees and installs the shingles on the roof. During the installation, the wind picks up a piece of shingle that flies off and hits a passerby in the face causing personal injury. The passerby sues the contractor for damages. The insurance company adjuster looks at the policy and notices he is insured for installing siding, under the description of operations, and denies the claim. Reason being that the premium charged for roofing is much higher than installing siding. The company does not know how many times the insured has installed shingles and if they cover this claim, they are open to all the other potential claims from his past work. The other reason maybe the insurance company may not insure Roofers at all, as it is not part of their product offerings.
Insurance companies are not in the business of denying claims as it is bad business practice and leads to litigation. Often times litigation outweighs the cost of the claim. In the same respect, an insurance policy is a very specific contract. The contract is a product sold by the insurance company and priced according to the risk, so they can make money.
If you buy a Homeowner policy, but later decide you are going to rent the house out to students instead, the Homeowner policy may become Void. The difference between a Homeowner policy and a Student rental/rooming house policy is very different and priced very different as well.
For businesses with multiple operations, will usually require multiple insurance policies as well. Most insurance companies specialize in specific business operations and specific coverages and or will not insure certain things, like pollution, cyber crime, professional liability, bonding and many more things. On large risks, it’s not uncommon to have 7 or more policies to properly insure all the operations and risk from them. It may also be better price wise to get policies from other companies that may have better knowledge and experience in certain things. This way they can offer a lower price as they know what to expect and what the losses are and cost.
If you would like more information, do not hesitate to reach out.
Steve Kadar
Recreation Business Insurance 