Nov 20, 2015

Top 10 List – What policyholders need to know about insurance coverage to maximize recovery

Insurance is an important asset for all businesses; it protects the company from loss and liability. Unfortunately, many businesses fail to take full advantage of their insurance coverage for a number of reasons. By failing to recognize the circumstances that give rise to coverage, or by not complying with policy requirements, businesses can forfeit millions of dollars. It is important therefore to understand how to maximize the protection and recovery afforded by this important asset. Here are 10 easy ways to ensure that you are maximizing the value of this asset.

1. Know which policies you have and what coverage they provide: Different types of policies provide different types of protection for different types of claims. Often, a claim or a loss can be covered under multiple policies. For example, in a suit alleging both personal injury and economic harm, there may be coverage under the comprehensive general liability policy and the directors’ and officers’ liability policy and possibly other policies. Because of this overlap, it is important to give notice to all insurers where there is a potential for coverage (see No. 5 below).

2. Identify the insureds under your policies: It is important to understand the persons and entities insured under your insurance policies as this can impact both the scope of protection afforded and who may seek protection under that policy. For example, directors, officers and employees can all be insured persons under policies. Vendors can also be added by broad form endorsements, and entities may be specifically added as additional insureds. Knowing who is an insured helps protect against out-of-pocket losses.

3. Know your indemnity agreements:
A variety of contracts may require you to indemnify the vendor or service provider for claims arising out of their business dealings with you. These requirements are common, for example, in leases and service agreements. It is important to ensure that additional insured endorsements are added to your insurance policies where required. Failure to add an additional insured endorsement to your policy as contractually required could result in liability for both the claim itself and breach of contract for failure to procure insurance.

4. Recognize the circumstances that require notice:
Notice is an important step in securing insurance coverage. A failure to provide timely notice can result in forfeiture of recovery from the policy; therefore, it is important to understand the circumstances that require notice. A lawsuit or a loss typically require reasonable notice to your insurance carrier. But other less obvious events may trigger notice requirements under the policy. These could include a call, email or letter demanding money, services or to forego some activity; these could also include receipt of a subpoena, a civil investigative demand or a request for an agreement to toll the statute of limitations. It is important to know your policy language and interpret communications from third parties appropriately.

5. Give notice early and often:
Policy definitions of terms such as “claim,” “suit” or “occurrence” may vary from policy to policy and insurer to insurer. When in doubt, give notice anyway under all potentially applicable policies.

6. Give notice to all primary and excess insurers: When an event requiring notice first occurs, the ultimate extent of the loss or liability will not likely be known. So, give notice at one time to all carriers, primary and excess. If the limits of the primary policy are eventually exhausted, you will have met the requirement for timely notice to the excess carriers.

7. Document, document, document: Give notice in writing and keep a record of all notice letters. Keep a record of all correspondence to and from the insurance company.

8. Establish a protocol: Have the policy information handy before a loss or claim occurs and understand the notice requirements under the policy. Having a system or procedure in place ensures that notice is easy and automatic.

9. Understand the circumstances that require the insurer’s consent: In the early stages of a claim, loss or lawsuit, it is important to understand the defense obligations under the policy. Does the policy include a duty to defend? If so, absent certain circumstances, the insurer will hire counsel to defend you. Is the policy a defense advancement or reimbursement policy? Remember, the insurer has a right to consent in advance to defense counsel and their rates. The policy may also require the insurer’s consent to certain payments. A failure to get the insurer’s consent in advance may result in a loss of coverage for those payments. Understanding these requirements at the onset will save you time and money later.

10. Carefully read and understand reservation of rights letters and denials of coverage: Make sure you understand the terms and conditions of any reservations of rights or denial of coverage letter. Certain reservations trigger additional duties on the part of the insurer. Understanding when these events are triggered is key to getting the full benefit of your bargain under your policies. Consult insurance coverage counsel to maximize your recovery.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Kristen E. Hudson