nsurance has never been more confusing or complicated than it is today. As a commercial broker with nearly 25 years of experience, I’ve observed that things seem to get more challenging and sophisticated year after year.

There are many products available for commercial operations, which is the focus of this piece. However, much of what I’ll discuss can also apply to personal insurance, such as home and auto. I promise to tie this into self-storage-related products before we’re done, but please indulge me for a moment.

One area I want to focus on is the proposal and declaration pages of an insurance policy. I believe the insurance policy is one of the most misunderstood contracts that almost everyone is involved with. Generally, people tend to focus on the few pages that highlight the types of coverage, limits of coverage, basis of settlement, limits of liability, deductibles, and annual premium—commonly referred to as the proposal or declaration pages. This is concerning, especially since most insurance policies are literally hundreds of pages long. Another issue is that, like many things, you often get what you pay for.

Question: What’s in those other (hundreds of) pages?
Answer: Only all the most important details of the contract!

Those hundreds of pages after the declaration pages are often more critical than the first few, yet most people never actually read them. Those pages contain the policy conditions, definitions, and, most importantly, the exclusions. In my experience, people only read the actual wording when they have a claim that hasn’t gone as expected, typically after a conversation with an adjuster or upon receiving a letter denying coverage or offering an unacceptable settlement.

The concept of insurance is that the claims of the few are paid by the premiums of the many. Long ago, insurance policies were primarily basic fire policies. The first known insurance contracts date back to 1347, if you believe the internet, although the concept itself predates that. Over the past several hundred years, insurance policies have evolved dramatically.

Most modern insurance policies are written on a “broad form” or “all-risk” basis. Translation: Everything is covered except what’s excluded. A policy can exclude certain perils as well as specific objects or property. A peril is essentially the cause of the loss, such as flood, wind, or fire. Most policies exclude flood entirely, along with various other types of water damage. Other common exclusions include automobiles, cash, and jewelry, which are typically covered by specialized policies.

Sometimes you will see a peril outlined on the declaration page, such as earthquake, flood, or sewer backup. There are two reasons for this. First, these perils are typically excluded, so the declaration page identifies that coverage exists for them, generally accomplished through endorsements. An endorsement is essentially a clause that adds coverage back that was otherwise excluded. The second reason is that these unique perils often come with much higher deductibles than more common perils, such as fire.

Over time, more exclusions have been added as insurers gain experience and the marketplace becomes more competitive. A notable recent exclusion is terrorism, which emerged in the wake of the terrorist attacks on Sept. 11, 2001, in the United States. The marketplace quickly reacted, excluding terrorism from nearly all insurance policies in North America thereafter.

It’s important to understand that exclusions are necessary. Without them, insurance companies would go bankrupt; it’s simply not possible or affordable to insure everything without exception.

While a few policies are still written on a named-perils basis, they aren’t very popular in the Canadian marketplace today. In other words, they only cover the perils identified. If a peril isn’t specified, there is no coverage for that loss. Early policies were simple compared to today’s. They were designed to provide coverage against fire, with a few other perils added as time went by, and insurance products evolved. Many enhancements have since been added, and a significant number of new products have been developed to offer coverage for risks that might otherwise be excluded.

Let’s get more specific. Typical declaration pages and proposals for a commercial policy will outline things like building limits and deductibles. They will also detail items like office contents, shop equipment, business interruption, boiler and machinery, and commercial general liability. Don’t get me wrong, these are all quite important and deserve your attention. However, what’s not highlighted in these few pages is what’s likely to bite you in the event of a claim. Although fire cannot be excluded, just about everything else can.

Flood and sewer backup are common property exclusions, along with other types of water damage. This is due to the many sources and ways they can cause extensive damage. For example, other types of water damage may include sudden accidental escape (like a pipe burst), seepage, or water entering through a foundation crack. Very few policies cover all of these, and more are being excluded than ever due to the popularity and rising costs of water claims.

Here’s an example illustrating the complicated nature of water damage in insurance. If you leave a window open and it rains, allowing water to enter your home, your insurance policy will likely exclude the resulting water damage. However, if that same window was broken by flying debris during a storm, any resulting damage will likely be covered.

I used water damage as an example because there are so many ways it can occur, and most policies exclude many sources. Many can be added back through extensions of coverage, such as flood and sewer backup. You’ll often see this on the proposal or declaration pages, but what you don’t see is that all other types have been excluded. There are certainly other perils and exclusions I could discuss, but I’m limited to an article, not a novel. Suffice it to say, there is a lot of detail in those hundreds of pages that deserve your attention. Here’s another way to look at it: The more exclusions a policy has, the fewer the claims. It’s not a good deal if nothing is really covered at the end of the day.

Tenant insurance or CGIS (customer goods in storage) is a popular option for self-storage operators in both Canada and the U.S. This is a perfect example of where exclusions should be a real focus. Storage operators offer or include a product for their customers, but how good is that coverage? Do you want your customers to be reimbursed, or would you prefer they receive a call or letter denying their claim? Most of my clients hope and expect that we will look after their customers and pay the claims whenever possible. This generally results in a better customer experience and potentially more favorable online reviews.

I’m not suggesting tenant insurance is more important than the facility owner’s policy. I believe both deserve your attention. However, it’s crucial to pay attention to the details of both policies, especially the exclusions. You are supplying a product to your customers for a reason. Most operators offer or include it to provide their customers with some insurance to fall back on in the event of a loss. You want to ensure it’s a comprehensive product that will cover most losses while incorporating reasonable exclusions.

Regarding the facility policy, look for industry-specific coverage options and read the wordings! I’m not saying to ignore building limits, deductibles, or business interruption insurance. I am saying to pay attention to the unique extensions specific to the self-storage industry, such as Self Storage Operators’ Legal Liability, Hazardous Tenant Content Abandonment, and Wrongful Sale & Disposal Legal Liability. I can virtually guarantee you won’t find these extensions in an off-the-shelf commercial policy. Seek out a broker and insurance company that specializes in this space.

The devil truly is in the details.