Insurance is a valuable asset, and when a significant loss or liability presents, corporate counsel can assist in pursuing and maximizing insurance coverage if they have a basic understanding of insurance concepts. This article offers corporate counsel tips on protecting insurance rights and maximizing insurance recovery.
Identify available coverage
In-house counsel should obtain copies of all policies that may respond to the claim or loss, including agreements by which other businesses — such as vendors, current and former affiliates, and suppliers — may provide insurance coverage to the company covering a liability or loss. With a myriad of specialty insurance products, determining whether there is insurance coverage for any given claim or loss can be complicated. Corporate counsel also should consider the nature of the claim. Liability policies cover claims for injury to third parties but often exclude coverage for property damage caused by pollution, which may be covered under a pollution legal liability policy. A directors and officers (D&O) policy covers directors or officers of an organization for errors or omissions committed in their roles as directors or officers, but may exclude coverage for errors committed in connection with their professional services. Such a claim may be covered under a professional liability policy (also called an errors and omissions, or E&O, policy).
Corporate counsel also should consider who suffered the loss or is the target of the claim. Organizations often have policies providing coverage for different entities or people within or related to the organization. A general liability policy often covers the corporate entity, but not directors, officers or employees, who may be covered by a separate D&O policy. A policy may cover a subsidiary but not the parent, or possibly cover the parent and all subsidiaries. A policy also may belong to another entity but cover the company as an additional or contractual insured.
Provide prompt notice
In-house counsel should ensure the company gives timely notice. Most policies describe when and to whom notice should be given. The consequences of late notice differ depending on the type of policy and implicated jurisdiction, but late notice may offer an insurer a defense to coverage. In-house counsel should give notice in writing and maintain copies. If providing notice through an insurance broker, in-house counsel should ensure that a copy of the broker’s notice, and all other communications, are approved and maintained by the company.
Document and present the loss
In-house counsel should compile and maintain documentation relating to a loss or claim. For liability claims, litigation hold notices should be issued as appropriate. In the event of a business loss, most property policies require policyholders to submit “proofs of loss” arising from covered losses as requested by the insurer. Businesses should collect documents evidencing damage, lost revenue and additional expenses. When presenting proofs, consider the scope of coverage and potentially relevant exclusions, and describe the loss and its causes accurately, without undercutting coverage.
Offer reasonable cooperation while protecting all rights
Under the “cooperation clause” of many policies, insurers may seek, and the insured may be obligated to provide, additional information regarding a claim. Such information requests can become contentious; in-house counsel should provide reasonably requested information and handle objectionable requests in ways that preserve the company’s rights. Insurers may seek privileged information such as case evaluations and memos regarding legal analysis and strategy while reserving their rights to deny coverage. They may seek confidential or sensitive information, or request documents that are not relevant to investigating and adjusting the claim. In-house counsel should consider applicable law and whether the insurer has accepted its coverage obligations when attending to such requests. Counsel must provide appropriate information without waiving attorney-client and work product privileges, which may require entering into a confidentiality agreement.
When an insurer receives notice, it is obligated to promptly acknowledge receipt of the claim, investigate and resolve it. If the insurer is reserving its rights or denying coverage, it must provide the basis for its position. If the insurer is delinquent in doing so, follow up in writing. An insurer may be unable to provide a final position upon receipt of a claim, but it should explain what additional investigation is required and then undertake it without delay. Corporate counsel should press insurers to move forward with due diligence, review available information and provide a coverage determination as soon as possible so that the policyholder does not, for example, miss early settlement opportunities.
Respond to insurers’ reservation of rights letters
When an insurer reserves its rights (ROR), in-house counsel should evaluate the basis for the reservation and protect their client rights. At a minimum, in-house counsel should respond, making clear that the company disagrees with the insurer’s positions. Counsel also should consider whether the insurer’s ROR entitles the client to appoint and control counsel. An insurer’s conflict may disqualify it from controlling the insured’s defense; its obligation may be to reimburse independent defense counsel, selected by the policyholder.
In reserving rights, the insurer may offer to defend but purport to retain the right to be reimbursed if the tendered claim is ultimately not covered. The law is mixed on whether a policyholder has any obligation to reimburse its insurer. The recent judicial trend is that it does not. In-house counsel therefore should review the policy for reimbursement provisions, consult applicable law and promptly object if appropriate so the insurer cannot later claim a reimbursement right, having offered to defend a claim in exchange for a new contractual right to recoupment.
Protect the company’s insurance assets when settling insured claims
In-house counsel should keep insurers updated on settlement negotiations regarding underlying claims and invite them to participate. The policy may require an insurer to approve the settlement and limit coverage if a policyholder settles without consent. More importantly, the insured likely will want the insurer to fund the settlement. Even if the insurer refuses, having it involved may help prevent the insurer from later claiming that the settlement was somehow unreasonable.
If coverage is wrongfully denied or delayed, consider options
If an insurer wrongfully delays paying a claim or denies it, in-house counsel must explore dispute resolution options. Counsel should consider whether the relevant policies contain limitations on the timing for filing suits, appeal procedures, arbitration or mediation requirements, and choice of law or venue provisions.