Residents of the nation’s capital recently were captivated by a bizarre tale that began when a local administrative law judge allegedly lost his pants – literally. The ALJ claimed his dry cleaner lost the pants and filed suit claiming $67,000,000 in damages under consumer protection statutes. Although the dry cleaner successfully fought the suit, doing so took more than two years and cost more than $100,000 – costs for which the dry cleaner was not insured. The Washington Post and local news networks covered the story closely, both as an example of abuse of the legal system and because the dry cleaner made clear its future was in jeopardy due to those uninsured costs.
Although the defense costs eventually were paid by donations, the dry cleaner announced Wednesday that it is closing due to lost revenue and the strain of the litigation (including, of course, the strain of not knowing whether its defense costs would be paid). This story might have ended very differently had the dry cleaner been properly insured.
As we move into the final quarter of the year, many of our clients are beginning the process of renewing their insurance polices. With the tragic tale of the DC dry cleaner as a backdrop, Reed Smith’s Insurance Recovery Group would like to take this opportunity to make a few renewal-related suggestions that we believe are important to all policyholders, be they small local businesses with simple general liability policies or sophisticated multi-national corporations with complex, multi-line, multi-layer insurance programs:
- Even if you are simply renewing an insurance program without any changes, use the process as an opportunity to review your program carefully. The dry cleaner probably had insurance for slips and falls and other “mundane” risks, but never imagined that it would face a debilitating consumer protection lawsuit. Think creatively about lawsuits that may be brought
- against you and look into insurance for them. You may find that the extra coverage is not particularly expensive.
- Insist that your insurer provide you a full copy of your policy – not just a binder – in advance of your renewal date. Doing so will allow you the opportunity to review the policy to ensure you are getting what you pay for. If your insurer resists, think about changing carriers. You would not buy a car without seeing it, and your insurance policy should not be any different. Your insurer should understand that.
- Consider whether to have counsel review your coverage for you. It is usually cheaper to get advice about the scope of your coverage before a claim arises (and to change your coverage based on that advice) than to engage counsel to handle an insurance coverage dispute once a claim arises.
- Do not limit your review to your general liability policies. Ambiguities in policies of all sorts – first party property, D&O, E&O, Employment Practices, etc. – can cause problems should you have a claim. The same is true of failing to purchase optional coverages that may be available as part of such policies.
- If you have a December 31 expiration date for your current insurance portfolio, consider whether you may be better served by extending your policy a couple of months and renewing early next year – but not at the end of a quarter. Most companies renew at year-end, leading to overworked brokers and underwriters and increased opportunities for mistakes. Many other businesses renew at the end of non-year end quarters and run into similar problem. Those of our clients with unusual renewal dates (for example, February 15) report that they have far less difficulty with their renewals than those clients who have end-of-quarter renewals.