By John L. Watkins, Partner, Barnes & Thornburg, LLP, Atlanta
Insurance is the one thing a business needs to have that it hopes never to have to use. Many businesses go years without having to call on their insurers to perform and a lucky few may never have a claim. However, when a claim or lawsuit arises, you need your insurer to perform and to handle the claim promptly and professionally. Although many insurers act professionally, many also deny coverage for claims when the only thing standing between a business and financial ruin is the insurance policy. Often, the reasons for denying claims are questionable, if not clearly wrong. Here are a few things you can do to make sure your insurance company will be there if you need it.
- Make sure your insurance agent or broker understands your business. Insurance should be the foundation of a company’s risk management program. An agent or broker can provide the right insurance only if he or she takes the time to understand your business. If an agent or broker is interested only in taking orders, you need to take your business elsewhere. As your company grows and becomes more complex, make sure that your agent has the sophistication to provide tailored and comprehensive coverage.
- Keep copies of all insurance policies in an accessible location. When someone calls me about a potential insurance coverage issue, it is surprising how difficult it often is to get copies of the policies. Policies should be kept in a central and accessible location. It is also a good idea to scan policies and to keep copies on a server off-site, perhaps on a cloud-based server that can be accessed anywhere. Note: insurance certificates are not policies, and declaration pages (a page or two that outline policy limits) are only a small part of the policy. Insurance policies are typically many pages long. Make sure your agent or insurer delivers complete copies of the policies.
- If you have a claim, or events happen that may give rise to a claim, notify your insurance carriers immediately. Insurance carriers often deny claims that would otherwise be covered because the insured did not give timely notice of the claim. The safest course is to put the carrier on notice of the claim in writing and to receive acknowledgement from the carrier that it is on notice. Check the policy for any particular requirements for giving notice. Notice to your agent may not be enough.
- Understand the insurer’s basic obligations. Most insurance policies impose two basic obligations on an insurer: To defend (to hire and pay for a lawyer to defend lawsuits and claims) and to indemnify (to pay for settlements or judgments). As a general proposition, an insurer’s duty to defend is broader than its duty to indemnify. This is important because often an insurer will agree to provide a lawyer to defend a case – thus saving the insured thousands of dollars -- even if it is not sure that the claim is covered or completely covered.
- Beware of potential limitations in commercial general liability policies. Commercial general liability (CGL) policies are often the backbone of business insurance. However, many insurers have loaded up their policies with so many exclusions (either in the policy or on endorsements to the policy) that a broad range of potential claims may be excluded. Your agent should review the exclusions with you. All policies are not the same and it is often possible to get endorsements that limit exclusions. It may also be possible to obtain other types of coverage to plug gaps in the CGL coverage.
- Make sure your agent is familiar with new specialized types of coverage. There are many types of specialized insurance policies that cover risks that may be excluded by CGL policies. Examples include “media tech” policies that provide coverage for trade secret violations and certain types of breach of contract, cyber liability policies (which can, for example, cover losses due to hacking and the release of personal information), and environmental impairment liability or pollution policies.
- Do not simply accept an insurance company’s determination that a claim is not covered. If your insurance company denies a claim, or if it issues a “reservation of rights” letter (a letter stating that it will cover a claim for now, but may deny later), do not simply accept the insurance company’s determination. Insurance companies often incorrectly deny claims. In such circumstances, an agent may be of some help, but you really need to see a policyholder’s insurance coverage attorney. A coverage attorney can tell you whether or not you should fight the insurance company’s decision. A coverage attorney may be able to convince the insurer to reverse its decision without the necessity of litigation. If litigation is necessary, coverage attorneys are not afraid to take on insurers.
- Your policies may cover more than you think. We sometimes refer to insurance policies as buried treasure because many businesses forfeit coverage by not calling on their insurers to act when they should. As noted above, insurers will often agree to defend a case if part of the case is not covered or if there are coverage questions. This alone can save a business many thousands of dollars. Insurers can also often be convinced to pay claims if there is a legitimate (although perhaps not certain) basis for coverage. If it is necessary to litigate with an insurer, courts may not accept an insurer’s arguments. Earlier this year, for example, the Supreme Court of Georgia rejected an insurer’s arguments seeking to avoid coverage for construction defect claims. Georgia law is clear that ambiguities regarding coverage are to be resolved in favor of the policyholder.