CL 0100–AAIS COMMERCIAL LINES COMMON POLICY
CONDITIONS
(June 2025)
Most American Association of Insurance
Services (AAIS) commercial lines policy require
attaching CL 0100–Common Policy Conditions. It contains five conditions:
1.
Assignment
2.
Cancellation
3.
Change, Modification, or Waiver of Policy Terms
4.
Examination of Books and Records
5.
Inspections
This analysis is based on the 01 18 edition of this form. All changes from the prior edition are
in bold.
This policy cannot be
assigned. The only exception to this condition is when the insurance company
provides its consent and, even then, that consent must be in writing.
This condition is essential to maintain the
integrity of underwriting. The named insured is the starting point for all
underwriting. If the named insured changes through assignment, a complete
re-underwriting of the account is required. The exception to this condition
allows the insurance company to approve or deny such an assignment only after
reviewing the request.
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Example:
Nancy, Becky, and Lyla own a business named NBL, LLP. Scenario 1: Their financial
manager recommends that they incorporate and change the name to NBL, Inc. No
other changes are being made, but NBL, LLP would like to assign its policies
to NBL, Inc. The underwriter reviews the request and agrees to the assignment
without any change in the policy. Scenario 2: Nancy, Becky, and Lyla want to sell the business,
and Charlie has offered to buy it. To expedite the deal, he requests that
they assign the NBL, LLP policy to him. Because of this condition, any
assignment NBL, LLP makes is not valid and will void coverage. |
Related Court Case: Assignment
of Policy Is Not Valid Without Insurer Consent
This condition explains how
cancellations are handled. Many states require the use of a mandatory state
form in place of this cancellation condition, but this is a good starting point.
The named insured has the right to cancel the policy. If there are
multiple named insureds, each one has this right since there is no condition
limiting it to a specific insured. The named insured can also cancel coverage
by returning the policy to the insurance company. Additionally, they can cancel
the policy by writing to the insurance company and specifying the cancellation
date.
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Example: Heidi and Jack are partners, and both are shown as
insureds on their insurance policy. Heidi sends a request to the insurance
company to cancel the policy without telling Jack. When a loss occurs, and
there is no coverage, Jack has no recourse against any party except Heidi. |
The insurance company can cancel by
mailing or delivering a written notice to the named insured. It must be mailed
to the latest mailing address the insurance company has been provided. The
notice must specify the exact date on which the cancellation is to take effect.
Proof of mailing is required, but a signed receipt is not.
The insurance company must provide the named insured with at least 10 days notice when the reason for cancellation is nonpayment
of premiums. If the cancellation is for a reason other than nonpayment, the
insurance company must give the named insured at least 30 days
notice.
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Example: Dravens, Inc. receives a notice of cancellation from its
insurance carrier. It was mailed on March 1, 2025, with the cancellation to
take effect on March 28, 2025. Scenario 1: The reason for cancellation is nonpayment of premium.
The cancellation is effective March 28, 2025. Scenario 2: The reason for cancellation is failing to resolve loss
prevention recommendations. The cancellation cannot go into effect because
the notice period is too short. The policy continues in force. |
The named
insured receives a return premium, if any, when the policy is cancelled. The
return premium, if any, is based on the insurance company's rules. This means it
may be prorated, short rated, or another
type of calculation, but it must be consistent for all named insureds.
The
cancellation is in effect even if the named insured has not received any
unearned premium.
Related
Court Cases:
Cancellation Held Not Effective When Notice Addressed to Previous
Insured
Cancellation Validated by Proof Mailing of Notice
Cancellation Notice to Address of Record Held Valid When Insured Failed
to Report Move
Was Cancellation Notice Timely?
The policy issued by the insurance company represents the agreement it
makes with the named insured. If the named insured requests a change to the
policy, the insurance company has the right to accept or reject the request. Since
the insurance company writes the policy, it also determines what changes can be
added to the policy. However, any change made must be in writing and issued by
the insurance company.
|
Example: Nellie sends an
email to her agent to notify him she has just purchased a new tractor and
requests it be added to her policy. She assumes the email was received and
never follows up. The tractor is destroyed in a windstorm, and Nellie sends a
claim notice to the insurance company. The company denies the claim because
the tractor is not on the policy. |
Related Court Case: Handwritten
Changes to Declarations Create Coverage Dispute
The insurance company has the right to
review the named insured's books and records. However, this right is restricted
to those that relate to this policy. This right extends throughout the policy
term and for up to three years after.
Related Court Cases:
Church
Financial Records Held Subject To Review by Insurer
Claimant
Must Submit To Examination Under Oath And Produce Records Requested
NOTE: This is also the only condition in the new edition that
was significantly changed.
a.
The insurance company is not obligated to make inspections of the named
insured’s property, but it has the right to do so, and the named insured is
expected to cooperate. The insurance
company can make recommendations.
b.
Any inspection that is conducted by the insurance company or by another
organization on behalf of the insurance company is intended solely for the
insurance company’s benefit. This
condition applies not only to the insurance company but also to the
organizations conducting the inspection on behalf of the insurance company.
c.
Nothing provided in an inspection is to be considered a statement that
the named insured’s operation complies with any specific laws or regulations.
|
Example:
Pretty Interested Insurance
Company inspects Unity Plus. The loss prevention specialist is very impressed
with the many innovations in the building and overlooks some of the very
basic life safety features that were compromised by the innovations. When a
fire occurs, and lives are lost, Pretty Interested
Insurance cannot be held liable because its employee failed to notice the
life safety failures. |
However, there is a provision.
If an inspection is made related to boilers, pressure vessels, or elevators to
obtain certifications from the state or municipality.
d. Any
inspection made or report produced is for the benefit of the insurance company.
Actions taken by the insurance company in response to them will be related
only to the risk's eligibility and the premium the insurance company will
charge.
Related Court Cases:
Loss
Prevention Representative Did Not Have Duty to Make Specific Inspection
Safety
Inspections for Underwriting Purposes Held Not To Create Liability For Insurer