Everybody needs insurance. We need insurance for our families, automobiles, homes and, let’s not forget, businesses.
But, it’s not as easy as just picking out a random insurer and signing up for a policy. A lot of research should go into the selection process, according to Tom O’Gara, shareholder/director with Sommer Barnard PC, who concentrates his practice on complex civil, commercial and environmental litigation and frequently represents policyholders in insurance coverage disputes.
Smart Business spoke with O’Gara about tips for selecting an insurer, what terms are important to know and what rights businesses have when a claim is filed.
What are some general tips that a business should follow when choosing an insurer?
Although your business will probably look to the premium charged for the coverage being offered, it’s possibly even more important to be sure that you’re obtaining all the types of insurance needed to operate with security. When purchasing insurance, you want it to cover any contingency your company might encounter. The better an insurer knows your business or industry, the more likely your business will obtain a good insurance product tailored to fit its needs at the right cost. Your business should also be concerned with the financial stability of the insurer and its history on claims handling.
What does ‘coverage of claim’ mean?
There are many types of claims that can be made against your company that could trigger coverage under insurance policies spanning many years. Common examples of these claims are those seeking damages for environmental contamination or for worker exposure to certain chemicals or conditions. Environmental contamination might have occurred or been present over many years before it’s discovered. A worker might develop an illness or injury from prolonged exposure to certain conditions throughout many years of employment. Your insurance will frequently provide coverage for each year the contamination or condition was present but unknown by your business to be causing injury. Each insurance company that sold a policy that might cover the claim should be put on notice of your business’s request for coverage. The more insurance policies you determine might provide coverage for the claim, the greater the likelihood that one or more insurers will defend and indemnify your business against the claim.
What are a company’s legal rights when an insurer defends under ‘reservation of rights’?
An insurer’s duty to defend its insured is greater than its duty to indemnify. Thus, an insurer will sometimes elect to defend your business under a reservation of rights until it can be determined with greater certainty whether the claim is covered. Defending usually means an insurer will hire an attorney to represent your business. However, if the defense is being provided under a reservation of rights, an insurer selected by the insurance company may have a conflict of interest to defend in a manner that seeks to prove there’s no coverage under the insurance policy. To prevent that conflict, courts frequently recognize that your business has a right to select independent counsel at the insurer’s expense in these situations. Whenever your business is notified that the insurer is defending under a reservation of rights, it should demand the right to select independent counsel. By choosing independent counsel, you’ll ensure that the attorney defending your business is solely concerned about protecting your business, rather than protecting his interest in repeat business from the insurer.
Why is it important to find missing policies?
One thing any company can do to protect itself is to be sure it knows where its insurance policies are and how they’re maintained. Because certain types of claims implicate policies covering many years, your company needs to find as many of its old policies as it can. If policies are lost or missing for multiple years, the risk to your company may be the sum of the policy limits for the lost policies. Many insurance companies haven’t kept old policies or seem to have great difficulty finding them in storage. If neither your business nor the insurer can find the policy, the burden is typically on the policyholder to prove the terms of the policy. While you might be able to prove the existence of the policy and certain terms from other documents, like claim forms, insurance schedules or certificates of insurance, the task is far simpler with the policy. Without the policy, there’s a significant risk the insurer could avoid coverage due to lack of evidence, even if the policy would have provided coverage. You should store hard copies of the policies in a safe place and keep backup files on a disk or other secure storage medium. If your business can’t find copies of the policies in its records, try to obtain copies from your insurer or insurance broker.
What if an insurer denies coverage?
If an insurer denies coverage, your company should explore its rights under the policy and under the law. Any significant claim that’s denied should be referred to an attorney, especially when you expected it to be covered. Even if you don’t think you have coverage based on a policy exclusion cited by your insurer, an attorney can tell you whether the courts have stricken down the exclusion as unenforceable.
TOM O’GARA is a shareholder/director with Sommer Barnard PC. Reach him at (317) 713-3500 or email@example.com.