Insurance — getting the right kind, properly fulfilling the associated obligations, and taking advantage of the coverage when it exists — represents an ongoing challenge for companies without a competent insurance expert. It is incumbent on you as an in-house lawyer to become familiar with the company’s policies of insurance. You cannot do your job properly unless you do this. Most of our clients either misunderstand or have a limited understanding of their insurance policies. Over the years I have encountered some key things to keep an eye on:
Ever hear the one about the electronics company that paid tens of thousands of dollars per year for many years for a commercial general liability policy and an umbrella policy, both of which excluded coverage for — wait for it — design, manufacture, sale, etc. of electronics? I have. Tens of thousands of dollars were wasted and there was no coverage where the company needed it.
If you haven’t done an insurance audit, do one. Compare coverage to risk to ensure your company’s insurance premiums are well spent on the right kind of insurance. At the same time, think about deductibles. Self-insuring for increased deductible amounts that are affordable to the company may significantly reduce premiums. Don’t rely on a broker to identify the nature and amount of insurance required — for one thing their main job is to sell you insurance and for another, they do not understand your business and its risks the way you and your colleagues do.
Who ‘owns’ your insurance policies?
I’m a big fan of clear ownership and responsibility for all matters, including contracts for insurance. Clear ownership means there is one person responsible for understanding, applying, communicating, enforcing, and otherwise ensuring that your company acts in accordance with the terms of the contract. In the case of insurance, it means there is one person who knows the risks the company needs to mitigate, what policies the company holds, what they cover, and when they might come into play.
The responsibility for policies often falls somewhere between finance and legal (unless a company is large enough to have a person responsible for insurance). If you are an in-house lawyer, it is incumbent upon you to ensure that someone owns the insurance policies and that the ‘owner’ is competent to make sure the policies are understood and fully utilized when they are applicable.
Pay attention to insurance application forms
Coverage may be refused where risks or knowledge of circumstances giving rise to a claim are not disclosed in the annual insurance application form. These forms take a lot of work and can’t be taken lightly. The forms should never be completed without a review by in-house legal. Before completing the form, always check with your senior management team for awareness about any circumstance or set of facts that may give rise to liability or risk. Make sure there is coverage for all of your locations.
Understand where your inventory is and who carries the risk associated with loss. Get the information about revenues, inventory, and contractual liabilities right. There is no point in buying insurance if a failure to pay proper attention to the application forms or to disclose known risk negates coverage. Keep in mind a “known risk” may be deemed to be known if one officer knew of the facts giving rise to the risk even if that person didn’t appreciate that the facts represented a risk.
Is the loss insured?
Don’t take the broker’s word or your insurance company’s first answer. While policies of insurance are often complex and use unfamiliar industry-specific language, they are contracts and should be approached as such. If you think your company is facing an insured loss, do your analysis first and develop your own view of whether coverage is available. It is often worthwhile to engage outside counsel to review issues of coverage because there may be a lot of money at stake.
As in every industry, there are some good brokers and some not-so-good brokers. Do not accept the broker’s interpretation regarding coverage unless it’s consistent with your own analysis. The same approach should be taken to any decision made by the insurer. If the insurer refuses or purports to limit its obligations in relation to an insured loss, carefully scrutinize the reasons for this and don’t accept the refusal at face value. Again, if you don’t feel qualified or have questions, engage external counsel experienced in insurance matters to review the insurer’s decision(s).
Defending an insured claim: work to influence the insurer to ensure your client’s interests are protected
In the event that the insured loss arises from a lawsuit and the insurer either takes charge or becomes involved in the litigation, stay involved. Keep the lines of communication open. If you have views about who should be chosen as counsel, express them. Ensure the insurer understands the interests of your client and that those interests remain at the forefront as the insurer assesses the merits and strategy for the litigation.
The insurance company’s interests are invariably different in some ways from your client’s interests. I’ve been involved in several cases where the insurance company focused solely on advancing the best technical legal case without regard for the insured’s interests. In one case, the insurer’s pleading in a civil case constituted an admission against the insured’s interest in a labour arbitration case. In another case, the insurer’s defence tactics created a public-relations nightmare for the insured.
The in-house lawyer is in a unique position to understand all of the company’s interests and to ensure that they are protected. Even in scenarios where the insurer has the right to control the defence, keeping the lines of communication open, being helpful and cooperative, and assisting to keep costs down will create a relationship with the insurer and will provide you with the opportunity to have a positive influence on the management of the case. Finally, keep in mind that the insurer typically wants to keep your client’s business and that there is always leverage arising from this fact.
I can hear my in-house colleagues groaning under the weight of our obligations. “Look on the bright side” says the Pollyanna in me, “it’s one more way in which we can and do add significant value!”