1. Forms
2. MP
3. MP-04-02

What the form is

The MP 04 02, titled "Coverage Extension–Acquisition or Creation of For-Profit Organization," is an endorsement to an ISO Management Protection Policy, specifically designed to be used with a Not-For-Profit Management Liability Coverage Form (such as MP 00 06). Its primary function is to extend management liability coverage to a new for-profit organization that the insured not-for-profit entity acquires or creates. This allows the not-for-profit's existing policy to accommodate certain exposures arising from this new for-profit venture.

Classes of business it applies to

This endorsement is relevant for not-for-profit organizations that are diversifying or expanding their operations through the acquisition or establishment of for-profit entities. Examples include:

• A non-profit hospital that acquires a for-profit diagnostic laboratory.
• A charitable organization that sets up a for-profit subsidiary to sell goods or services to generate revenue for its mission.
• A non-profit university that creates a for-profit company to commercialize research and development.

Special considerations

There are several important considerations when using the MP 04 02 endorsement:

• Listing Requirement: The newly acquired or created for-profit organization must be specifically listed on the endorsement or in the policy declarations.
• Notice Provision: Crucially, the insured must provide notice to the insurance company, typically within a specified period (e.g., 30 days), following the acquisition or creation of the for-profit entity. Failure to provide timely notice can jeopardize coverage for insured persons related to that new entity. This dual requirement of listing and separate notification can sometimes cause confusion.
• Excess Coverage: Coverage provided by this endorsement for the acquired or created for-profit entity is often excess over any other valid and collectible insurance available to that new entity.

Key information for agents and underwriters

Insurance professionals should be mindful of the following when dealing with the MP 04 02:

• Risk Assessment: Underwriters must thoroughly evaluate the activities, financial stability, and overall risk profile of the newly acquired or created for-profit entity. This new entity may introduce different types or magnitudes of risk compared to the not-for-profit parent.
• Pricing: Extending coverage to a for-profit entity will likely result in an additional premium. This premium should reflect the increased exposure and the specific risks associated with the new for-profit's operations.
• Potential Coverage Gaps: Agents need to emphasize the critical importance of the timely notice provision to their clients to prevent potential denial of claims. Ensuring the new entity is correctly scheduled is also paramount.
• Underwriting Guidelines: Insurers will need to determine if the operations of the new for-profit entity align with their underwriting appetite for management liability risks. The nature of the relationship, including ownership and control, between the not-for-profit organization and its new for-profit subsidiary will be a key underwriting factor.