Top 10 Tips for Insurance Policyholders (Fall 2020)

John A. Gibbons

1. Assess the policies you have and reassess the policies you should buy in the future.

2020 has brought a host of unwelcome events: pandemics, fires, floods, cyberattacks, financial failures, etc. An insurance program tailored to the risks and business opportunities of your specific company can provide for recovery during dark times, and specialized insurance products can help you safely expand your business. It is time to consider how tailored your current program is, and how you can better align insurance assets to your business in the future.

2. Use indemnities and additional insured status to expand your insurance assets.

Everyday business for many companies involves the use of terms and conditions; sales or services orders; and leases that address indemnification, minimum insurance requirements, and additional insured status. A well-thought-out use of additional insured status can allow you to leverage the insurance assets and insurance premiums of counterparties.

3. Ensure that you get the full benefits of your liability and property insurances.

Insurance policies provide many coverages, policy limits, and extensions that may not be readily apparent, and all of which may provide substantial financial assistance in the event of a loss. In addition, specialized forms of insurance, additional riders, or policy wording upgrades can better tailor policies to your specific business attributes. Use the renewal season to explore your options.

4. Avoid “conventional wisdom” about what is or is not covered.

With insurance, words matter! In fact, the wording determines the outcome. Do not accept statements about what others think a policy does or should cover. For example, claims for intentional wrongdoing and punitive damages often are covered by liability policies. Likewise, losses from your supply chain may be covered under your property policies. Non-payments of debts and breaches of contractual promises are covered under various forms of policies. Let the words lead you to coverage.

5. Give notice once you know of a loss or claim.

Typically, notice should be given soon after a loss, claim, or lawsuit, but remember that a delay in giving notice will not necessarily result in the loss of coverage. Consider the potentially applicable insurance assets that may apply and give notice.

6. Insist your insurers fully investigate claims.

Insurers have a duty to investigate claims thoroughly and must look for facts that support coverage.

7. Watch what you say.

Communications with an insurer or an insurance broker regarding a lawsuit against you or a loss are not necessarily privileged.

8. Don’t take “no” for an answer.

A reservation of rights is almost always the start of the insurance claim process, and a denial should not dissuade you from pursuing your rights. Even if coverage is not obvious at first, it may be there, if you look in the right places.

9. Document, document, document your claim.

Whether it is a first-party loss or a liability suit against you, write to your insurer and document your submission of information and materials. Require your insurer to respond in writing and to explain its position. A well-documented chain of correspondence narrows disputes, helps to limit shifting of insurer positions, or helps to make such shifting very apparent if your claim proceeds to formal enforcement measures.

10. Insist that your insurers honor their duties.

In the liability context insurers frequently owe broad duties to defend with independent, conflict-free counsel, even if uncovered claims dominate the lawsuit against you. In property insurance contexts, insurers have duties to help you on an expedited emergency basis to protect your interests immediately after a loss. It is important to hold insurers to their duties to protect you immediately upon assertion of liability or after a loss—delay only benefits insurers.

 

Is There a Glitch in Insurance Coverage for Social Engineering Scams?

James S. Carter

Social engineering scams seeking to deceive companies into making wire transfers to fraudulent bank accounts continue to plague companies. According to the FBI, social engineering fraud costs businesses billions of dollars each year. On top of the lost funds, social engineering scams can lead to substantial investigation costs and even litigation.

Many businesses trust their crime or fidelity insurance policies to protect them from social engineering losses. Insurers, however, take the position that such policies do not cover all social engineering scams. Depending on the type of social engineering scam or how it happens to play out, insurers may deny coverage, depriving the policyholder of valuable insurance protection. Continue reading “Is There a Glitch in Insurance Coverage for Social Engineering Scams?”

Case Review: Seventh Circuit Repudiates Insurer’s Attempt to Sell Illusory Coverage to Policyholder

Shareen Sarwar

Last week, the Seventh Circuit had occasion to consider the scope of a contractual liability exclusion in the context of professional liability coverage. In Crum & Forster Specialty Ins. Co. v. DVO, Inc., No. 18-2571, 2019 WL 4594229 (7th Cir. Sept. 23, 2019), an insurer insisted that its contractual liability exclusion did not render the professional liability coverage it sold illusory. The Court disagreed, however, holding that the exclusion was overbroad and would, if applied, defeat the fundamental purpose of the insurance. The Court further concluded that the policy must be reformed to meet the policyholder’s “reasonable expectations” of coverage.

The insurer had sold both primary and excess insurance policies to its policyholder, DVO, a company which designs and constructs anaerobic digesters. Pursuant to the coverage grant, the insurer agreed to pay DVO’s liabilities for, among other things, “damages or cleanup costs because of a wrongful act” arising out of “a failure to render professional services.” The Court opined that the essential purpose of this insurance was to provide coverage for professional malpractice. Continue reading “Case Review: Seventh Circuit Repudiates Insurer’s Attempt to Sell Illusory Coverage to Policyholder”

Pay Attention to Policy Language in a Hardening Insurance Market

Ian Ascher[1] and Jared Zola

The insurance market has proven to be a difficult environment for buyers in 2019. The long tenure of the soft insurance market cycle is changing, and is presenting challenges with pricing, capacity, and sustainability of favorable coverage terms. Coming out of difficult natural catastrophe years in 2017 and 2018, the property insurance market took a sharp turn to protect insurers’ bottom lines. While hardening of the property insurance market was expected, the broader casualty market has taken this opportunity to drive corrective action on their portfolios as well, leaving insurance buyers with little leverage.

How Insurers Are Reacting to the Market Shift

Insurers are approaching the market shift with different strategies, some focused on rate increases, while others are focused on restricting terms, or both. While individual loss experience still plays a role in renewal outcomes, there appears to be more of a portfolio-level push on rate and terms regardless of individual quality of risk factors for any given policyholder. In this environment, stricter control over capacity deployment leads to less competition, which may force the buyer into tough decisions regarding what utility insurance provides for its organization. The guarantee of comprehensive coverage at a fair price becomes harder to balance in a setting where definitively having both is less than certain. Continue reading “Pay Attention to Policy Language in a Hardening Insurance Market”

Insurance Coverage for the Opioid Crisis

Amy J. Spencer

With the “opioid epidemic” at an all-time high—and the resulting news coverage and public awareness also at an all-time high—now is the time for pharmaceutical companies, pharmacists, hospitals, doctors, first responders, and employers to review their professional liability and general liability insurance policies and any other potentially applicable policies such as products liability and directors and officers (“D&O”) insurance. Continue reading “Insurance Coverage for the Opioid Crisis”

Corporate Executives Beware: You Need Insurance Protection When Serving on a Nonprofit Board

Robyn Michaelson

Michaelson, Robyn L.Many corporate executives generously serve as directors and officers of nonprofit organizations. While they are undoubtedly inundated with meetings and workshops focusing on corporate risk management at their day job, they may not consider potential liability arising from their philanthropic work. Just as a corporate director may face lawsuits, even those lacking merit, for allegedly breaching fiduciary obligations to shareholders, so, too, a nonprofit director may face similar allegations of wrongdoing for a broad range of activities including, for example, allegedly permitting the mismanagement of funds or approving an employee’s termination. Even if the director ultimately prevails after a trial on the merits, the nonprofit may not possess the financial means to indemnify her or his legal fees. Before any such issue threatens financial well-being, it is prudent for any individual joining a nonprofit organization to take the time to make sure the nonprofit has appropriate insurance coverage. So what is appropriate coverage?

Continue reading “Corporate Executives Beware: You Need Insurance Protection When Serving on a Nonprofit Board”

New York’s Highest Court Clarifies That “Disgorgement” Losses May Be Insurable

Jared Zola

Zola, JaredOn Tuesday, in deciding J.P. Morgan Securities, Inc., et al. v. Vigilant Insurance Company, et al., the New York Court of Appeals handed down a victory for policyholders seeking insurance coverage for liabilities arising from Securities & Exchange Commission (SEC) claims, particularly broker-dealers and clearing firms. Frequently, the SEC resolves such claims by way of a consent order (e.g., an “Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions”), which requires a policyholder to pay certain amounts as “disgorgement.” Insurers typically refuse to cover disgorgement remedies, contending that public policy prohibits insurance recovery for the return of so-called “ill-gotten gains.”

But not all “disgorgement” is created equal. In J.P. Morgan, the Court of Appeals clarified that mere labels used in an SEC conseimage by Shutterstock licensent order will not determine a policyholder’s rights under an insurance policy. Using the court’s analysis, the insurer must examine the nature of the disgorgement payment to determine whether it represents revenue that the policyholder pocketed or improper profits acquired by third parties. If the disgorged monies are not the policyholder’s own revenue, then the company will not be unjustly enriched by recouping insurance proceeds and may obtain coverage for its loss. This is particularly good news for financial companies with potential liability to the SEC for allegedly ill-gotten profits that ultimately end up in third parties’ pockets, such as hedge fund customers. Continue reading “New York’s Highest Court Clarifies That “Disgorgement” Losses May Be Insurable”