A potential nonissue Featured

8:36am EDT October 25, 2006
Business owners generally understand the need for insurance. But they don’t always understand exactly why they need it or exactly what their coverage includes once they acquire a policy. Failure to purchase the proper coverage can be devastating in the long run, which is why business owners should review their present and future needs frequently. And they should not always rely on themselves or their agents and brokers to perform those reviews.

Smart Business discussed business owners’ insurance needs and coverage issues with Kevin Riley, a partner at Godwin Pappas Langley Ronquillo LLP, to learn why constant coverage reviews are essential components of an overall business strategy and how utilizing the services of an impartial adviser like an attorney can be a wise investment.

Should business owners rely solely on their experiences and agents to understand their insurance needs and what their policies include?
Experience is not always the best teacher, and agents do not always explain fully what insurance policies do or do not cover. All too often, business owners find out after they have had a loss what their policies lack in coverage. By then, it is too late to do anything about their coverage or their losses. It is important to note that these ideas apply to owners of all sizes of business.

What can attorneys do in negotiating insurance policies and coverage issues to assist clients?
For one thing, attorneys can recognize that an insurance policy a client may already have does not cover it for a loss for which it seeks coverage. They can also identify coverage that a client needs or may not even know is available, but which it would want to have.

Here is an example. An angry employee in a small company approaches his boss after being employed for three or four years, but without getting the raise he thinks he should have received. He says he worked a lot of overtime hours for which he never received any compensation. He demands to be paid that money, and threatens to file a claim against the employer. Not all business owners are aware that they may be able to insure themselves against such situations. An attorney can bring the availability of this type of insurance to the employer’s attention, and possibly save the company substantial revenue.

The same idea holds true with sexual harassment claims, director and officer liability claims, business interruption claims, etc. If business owners have to pay the costs and expenses of such claims out of general revenue, these types of unexpected expenditures could have a dramatic and adverse effect on a company’s finances — and threaten its very existence.

So an attorney is able to give the client and the insurance agent a ‘from-the-trenches’ view of insurance policies and coverage issues that confront all businesses.

At what point should business owners get attorneys involved in the insurance policy/coverage issues?
Ideally, attorneys should be involved when the principals of the business first buy insurance, or at least within 90 days of a policy renewal. In any event, business owners should consult with attorneys at least yearly so they can integrate insurance costs into their operating and forecasted budgets without running into any surprises regarding premium bills, like health care increases.

Should business owners keep attorneys apprised on an ongoing basis of significant events affected by insurance coverage?
Yes. A simple e-mail from a business owner to an attorney advising him of significant events that have occurred can help an attorney decide if they are likely to have an impact on the company’s budget or need for additional insurance in the next year. Business owners who keep attorneys involved in the insurance coverage issue can help themselves and their employees in the long run. For a small business, there is nothing worse than personnel litigation.

What criteria should a business owner apply when retaining an attorney who specializes in insurance issues?
The first is to retain a law firm or lawyer that deals with insurance issues as part of its primary practice. It is important to work with an attorney who has some working knowledge about the client’s business as well, and one who is willing to visit the company to learn more about its operations. If the law firm is not willing to allow that, find another firm. Attorneys need to be on the ground to see the business’s operation in order to provide the essential advice about insurance issues that a business owner needs to operate successfully.

KEVIN RILEY is a partner in the Houston office of Godwin Pappas Langley Ronquillo LLP. Reach him at (713) 425-7435 or kriley@godwinpappas.com.