August 2016 edition
Ten Points Every In-House Counsel Should Know About Insurance
Joseph M. Saka, Lowenstein Sandler
If you’re like many lawyers, just the topic of insurance beckons negative thoughts of the annual premium you pay to cover your home and car, the unwarranted and incomprehensible denial letter you received from your health insurer, and the annoying neighbor who always is trying to sell you additional life insurance.
When you’re in-house counsel, however, insurance coverage need not and should not be a topic that conjures up bad feelings. Rather, insurance should be viewed as a resource that can make your job easier. Here are ten tips on how your company’s insurance policies can help you succeed as in-house counsel:
- Insurance Brings Money In The Door – Legal departments at companies often unfairly are considered “cost centers.” In truth, the advice and counsel that legal departments provide save their companies substantial sums. With insurance, however, the benefit is measurable. Insurance coverage provides a unique way for legal departments to bring money in the door. Insurance coverage may pay for, among other things, costs for investigating a claim or defending a lawsuit, costs for settlements or judgments, and costs for damage to property including costs for interruption of a company’s business operations.
- Reading an Insurance Policy Need Not Be Intimidating – Insurance policies can look intimidating. They often are thick documents comprising scores of pages with small, single-spaced font. But, like SEC filings, once you know the basics, you need not be overwhelmed. Most policies contain five basic sections: (a) a declarations page that sets forth the limits and policy period; (b) the insuring agreements; (c) the exclusions sections; (d) the policy conditions; and (e) policy endorsements. Once you have an understanding of these five sections, you will be far ahead of the curve.
- There Are Many Types of Insurance Policies – Just as individuals do not have a single type of insurance, companies have many types of insurance policies. Common policies include commercial general liability policies, directors and officers liability insurance policies, employment practice liability insurance policies, property policies, and fidelity policies. In addition to these common policies, there are a number of policies that are gaining popularity to address emerging risks including representations and warranties insurance, political risk insurance, and cyber insurance.
- More Than One Policy May Provide Coverage For The Same Liability – Not only are there many types of insurance policies, more than one policy may respond to the same risk. A common example comes up in the context of your personal insurance. If you are backing out of your home driveway in your car while talking on a work telephone call and have a collision, your personal automobile policy, your homeowners policy, or your business commercial general liability policy may respond depending on the facts and circumstances. The same is true when it comes to your company’s insurance portfolio. It is important to understand your company’s insurance portfolio and know which policies may respond to a loss or claim.
- All Policies Are Not the Same – It is critical to carefully review language in purchasing insurance and assessing coverage because all policies are not the same. There are wide variations from policy form to policy form, and even seemingly minor differences in language can have drastic implications on the scope of coverage. Brokers, risk managers, and coverage counsel can help you maneuver through these issues.
- Insurance is State-Law Specific – One important point to know in assessing the availability of coverage is that insurance is state-law specific. Because there may be significant differences in the law from one state to another, this means that you need to identify which states’ law may apply in evaluating whether there may be coverage available for any particular claim or loss.
- Notice, Notice, Notice – Too often, companies forfeit their right to coverage simply because they fail to take one simple step: provide notice to their insurance company of the claim or loss. It is imperative for legal departments to understand what they are required to do in the event of a claim, accident, or loss. Some policies require notice within a certain number of days, some “as soon as practicable,” and some within a reasonable time period. Providing notice is not hard, and you do not want to be responsible for giving up millions of dollars simply because you failed to check the proverbial box.
- You Need Not Accept An Insurance Company’s Denial – After receiving your company’s notice, insurance companies generally have three options: (a) accepting coverage; (b) denying coverage; or (c) reserving their rights to deny coverage pending the receipt of additional information. Where your insurance company denies coverage, you need not simply accept that denial without further action. Instead, you should consider all your options, such as providing your insurance company with additional information, asking your insurance company to reconsider its position, engaging in settlement discussions, and/or retaining experienced insurance coverage counsel to challenge the denial.
- There May Be Coverage In Your Commercial Agreements – In addition to your company’s own insurance policies, you should not forget protection that may be afforded to your company by virtue of its commercial agreements. Commonly, in a company’s business agreements, the other contracting party agrees to indemnify the company and/or name the company an additional insured under its insurance policies. This is another source of protection for your company.
- Don’t Forget About Yourself – As in-house counsel, you are at risk that claims may be asserted against you personally. These claims may include allegations of malpractice or other misconduct and may be asserted by a variety of parties such as the company itself, regulators, customers, and shareholders. Do you know whether your company’s insurance policies provide coverage for you? Don’t assume that this coverage already is provided under your company’s insurance policies. Instead, consider critically whether employed lawyers coverage is provided by any of your company’s policies and, if so, whether that coverage is sufficient.
About the author
Joseph Saka, Counsel, is a member of Lowenstein Sandler’s Insurance Recovery Group in Washington, DC where he represents policyholders, including corporations and corporate directors and officers, in disputes with their insurance companies and helps clients maximize the value of their insurance assets. He can be reached at 202-753-3758 or email@example.com.
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