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 protected].