Your company faces countless demands on its financial, personnel and time resources, making it a challenge to prioritize insurance coverage. So it is worth noting how Virginia’s recent earthquake and New England’s brush with Hurricane Irene serve as reminders of the importance of insurance. Both events were virtually unheard-of for those regions, and although they were not as catastrophic as they could have been, some estimates placed the total damage cost at more than $10 billion. Only a fraction of these losses are insured, potentially leaving many companies in financial distress.
If your company has been affected by either of these natural disasters, it is to be hoped that you have reviewed your coverage, retained coverage counsel and taken other steps to position any losses as successful coverage claims. Even if your company is unaffected by the earthquake and hurricane, these events should inspire a fresh look at your company’s current coverage and its future coverage needs.
Identify coverage needs and knowing coverage
It is critically important that your company understand its insurance coverage needs and the coverage it already has in place. The last thing your company needs when faced with a serious loss is to find out that it is not covered by your insurance program, especially if you thought it would be.
When contemplating coverage needs, imagine the worst case and most catastrophic scenarios, and then insure against them unless it is prohibitively expensive. Often the most devastating losses are the least likely, making it tempting to save money by foregoing coverage. One way to avoid this temptation is to think of coverage as an important business asset -- too often coverage is thought of as a liability or a cash investment with zero return. If your company grumbles about writing its premium checks, try to remember that having insurance is win-win: It protects against unplanned losses, and if those losses never materialize, that means good luck is on your company’s side, with the added bonus of the peace of mind that your company has enjoyed knowing it had good coverage to protect it.
All policies are not created equal. Even relatively standardized forms such as those for comprehensive general liability (CGL) can vary materially, especially when endorsements come into play. Also, too often policyholders make assumptions about their policies without ever actually reading them, which can lead to financial calamity in their hour of need. For example, many commercial property policies do not cover most losses resulting from earthquakes and hurricanes. As another example, most CGL policies do not cover cyber-liability losses. Because many policies are written using complicated language, enlisting the help of your broker or an insurance policyholder lawyer to analyze your policies is a sensible approach.
If you find that your company’s existing coverage is inadequate, all is not lost, because often you can acquire retroactive endorsements to expand or modify coverages. If you conclude that your company’s coverage is adequate, then your investment in the policy reviews was nevertheless worth it because you are left with one less thing to worry about.
Make someone responsible for insurance program
If your company does not have someone designated as its formal risk manager, it is important to name someone. Include conducting an annual review of the company’s coverage program as part of the job responsibilities for which she will be held accountable. In addition, have your risk manager perform a review whenever your company buys or sells significant assets or otherwise undergoes material changes to its business. Unless your risk manager is highly experienced in insurance coverage concepts and language, it is prudent and a worthwhile investment to enlist a broker or a policyholder lawyer to assist in these reviews.
Be prepared to submit a claim before emergency occurs
Put a plan in place now to deal with future insurance claims. Do not wait until a claim arises before figuring out how to develop and submit it to an insurer. Stress upon your company’s employees the importance of bringing any significant loss or potential loss to the immediate attention of your company’s risk manager or an executive. This includes liability to third parties, as well as third parties’ liability to your company.
Charge your risk manager with knowing all timing, notice and cooperation obligations in your company’s policies, recognizing these can vary. Failing to comply with these requirements gives your insurers leverage in coverage negotiations, and it is completely avoidable with planning and a disciplined approach. Another aspect of your company’s plan should be to have an awareness of the types of claims covered by your policies in order to avoid mischaracterizing claims in a manner that jeopardizes or voids coverage. A policyholder lawyer can be helpful in developing your company’s strategic claim management plan.
In summary, the adage that an ounce of prevention equals a pound of cure rings true when it comes to your company’s insurance coverage. Let the Virginia earthquake and the New England hurricane be lessons that even the most improbable losses can and eventually will happen to some company somewhere. Don’t be the company without an insurance coverage chair when the music stops.