Securing the largest possible recovery for a storm-related loss requires careful expert analysis of your insurance policies. For example, many claims for losses caused by Harvey will present significant challenges for policyholders who have little or no coverage for “flood.” However, just because damage is caused by water does not necessarily mean it falls within a flood exclusion or sublimit. Also, damage that results from wind and rain may not be excluded by subsequent flooding of the same damaged property. Therefore, for large losses policyholders should assemble a team of experts to prepare and negotiate the claim, including risk managers, accountants or loss adjusters, and coverage counsel. Insurance companies understand the importance of such expertise, and are busily at work now assembling teams to devise strategies to minimize their exposure to Harvey claims. Policyholders may find themselves at a distinct disadvantage if they fail to bring the same expertise to bear when pursuing their claims.
Provide the insurance company with all relevant information about your loss without waiting to be asked. Also, do not wait until all of the information about all elements of the loss can be presented in a neat package. Provide information as it becomes available. Further, some attorneys are advising policyholders in Texas to submit property damage claims before September 1, 2017, in order to possibly avoid the impact of a Texas statute that takes effect on that date. The statute will reduce the rate of interest awarded to a policyholder who is successful in an insurance coverage lawsuit. While immediately notifying your insurance company that you have suffered a loss is always advisable, be careful not to make unsubstantiated assertions in the interest of meeting this filing date. In particular, be mindful that asserting a loss amount without justification can cause problems that outweigh the possible benefit of earning additional interest if you prevail someday in a coverage action.
Under the best of circumstances, major insurance claims tend to be resolved only when the policyholder pushes them to resolution.When competing for attention with countless other policyholders after a catastrophe, it is imperative that the policyholder make clear at the outset of the adjustment process that it will cooperate fully and provide information promptly, but that the claim must be settled by a date certain. Pick a realistic date and stick to it, if need be threatening to file formal proofs of loss or to assert claims of bad faith claims handling. Also be sure to explain to your insurance companies – in writing – any financial pressures created by the loss that make prompt payment of your claim important.
Most property insurance policies impose a number of requirements upon the policyholder, including timely notice and deadlines for the filing of proofs of claim and the commencement of coverage lawsuits. The failure to comply with these requirements might result in a forfeiture of coverage. So, be sure to comply with these requirements or obtain the written agreement of the insurance company to adjourn deadlines.
Typically, the insurance company will make a “good faith” partial payment and then pay little or nothing more until a final negotiation over all of the open issues. This allows the insurance company to hold onto funds that should be paid out for undisputed portions of the claim and increases its leverage for later negotiations. Counter this strategy by forcing the insurance company to commit to a position on coverage and to pay the amounts due under its own analysis of the claim. Start by demanding a coverage determination. Typically, insurance companies issue vague reservation of rights letters that quote numerous policy provisions without explaining how those clauses apply to the claim. Such a letter is intended to protect the insurance company from a waiver of defenses, but does not fulfill its obligation to provide a timely coverage determination. Respond to the reservation of rights with a demand for a detailed and specific coverage determination, reminding the insurance company that its failure to do so may constitute bad faith. Also, demand payment of the undisputed amount of each element of the claim. For example, a dispute over the period of restoration for business interruption coverage should not delay payment for property loss. If the insurance company will not agree to make partial payments, submit partial proofs of loss, which will trigger the deadlines for payment under most states’ unfair claims handling statutes.
The resolution of claims, particularly catastrophe claims, can be slow-tracked by a high turnover among insurance adjusters or just a lack of attention by claims personnel. Policyholders should not only be persistent in their demands for attention, they should also create a written record of everything that happens with respect to the handling of the claims, including their responsiveness to requests for information and the insurance companies’ delays and lack of responsiveness. The chronology should be presented to the insurance company in writing on an ongoing basis to deter dilatory conduct and to make a record for a possible bad faith claim later on.
If the claim cannot be resolved through negotiation, you may have a choice of proceeding either to appraisal or litigation. Appraisal is a form of arbitration provided for under many insurance policies that either party can demand to resolve disputes over the amount of the loss. It can be a quick and inexpensive way to quantify disputed amounts of the claim. However, appraisal is not required, and may not be appropriate, when there are coverage issues to be resolved. For example, if the parties disagree over the amount of a business interruption loss because of a dispute over whether market conditions after the hurricane should be considered when calculating damages, the policyholder would be entitled to have that coverage issue decided in court, where the rules of insurance policy interpretation are generally favorable to policyholders, and unfavorable to insurance companies. Appraisers, who typically are in the building trades, generally are not qualified to address such issues. Also, bad faith claims fall outside the scope of an appraisal clause and will have much greater value if placed before a jury. So, the policyholder must carefully consider its options and not necessarily feel compelled to agree to an appraisal simply because the amount of damages is one issue in dispute.
The key to getting insurance claims satisfactorily resolved within a reasonable period of time is for policyholders to take control of the process and to demonstrate a resolve to secure the coverage they paid for. This requires hard work, but will pay handsome dividends.
]]>For an attorney unfamiliar with the nuances of insurance policies and the claims process, a broker can provide invaluable support – if the broker is explicitly tasked with helping the company assess its coverage needs and analyze policies purporting to provide it. Not all brokers are equipped to perform these tasks, and not all policyholders want them to. Counsel’s first task, then, is to determine what kind of broker support is needed and to make sure that the appropriate broker is bound by contract to provide it. A written agreement that addresses the scope of services provided is essential.
To determine that scope, counsel needs a full grasp of the core tasks in which the broker may (or may not) be called upon to assist (for an outline of those tasks, see Insurance Due Diligence below).
Spell Out the Broker’s Role
Misunderstanding about what exactly is expected of a broker is far more likely in the absence of a written contract. The contract should not only identify the lines of coverage the broker is authorized to procure, but also clearly indicate whether the broker is expected to provide advice and expertise to assist the client in their selection of insurance or handling of claims, and to provide other services, as opposed to simply serving in the role of an order taker who shops for what the client has asked for.
Such clarity is important not only so the parties to the contract have a clear understanding of their roles but also to indicate where responsibility lies if the insurance that is obtained or the broker services provided turn out to not meet the client’s needs. In many jurisdictions, there is a legal presumption that a broker is merely an order taker who owes no duty to the client beyond procuring the insurance coverage that was requested or reporting an inability to do so. Further, a burden is often placed upon the client to read and understand the policies that have been obtained for them, even if the client has no expertise in insurance. These presumptions have resulted in many clients, who believed they were entitled to rely upon the expertise and advice of the broker, finding that they have no legal recourse when their coverage turns out to not be what they expected.
All too often companies fail to avail themselves of the expertise required to expedite and maximize a claim
That predicament can often be avoided by entering into a written contract with the broker that establishes the type of special relationship some courts find necessary in order to impose liability upon a broker for obtaining inadequate or unsuitable insurance. The agreement should specify that the client is relying upon the advice and expertise of the broker and that the broker’s agreement to assume that role is a material consideration in being retained. The broker may require a fee in order to assume the role of advisor, and if so, the client must decide whether it is worth the cost.
Insurance Due Diligence
While a broker can provide vital assistance in the purchase of insurance and pursuit of claims, it’s ultimately up to in-house counsel to vet insurance contracts and to hold insurance companies to their responsibilities at claim time. That entails executing the tasks outlined below, with or without close assistance from a broker.
Before coverage is bound:Counsel should analyze the contracts being offered with the company’s major liability and loss exposures in mind. Insurance policies for businesses are typically complex, lengthy contracts written in arcane language, with many exclusions that take away with the left hand much of the coverage seemingly proffered with the right. Many of the key provisions found in standard form policies have been interpreted by the courts and are best understood in light of that case law.
Most policies consist largely of standard forms, many of which remain unchanged from year to year. The broker can be asked to identify all changes in coverage. Moreover, excess policies often “follow form” to primary policies. So reviewing higher-layer policies in a tower of insurance is typically far less involved than gaining an understanding of primary policies. Care must be taken, however, to ensure that excess policies do not have less advantageous terms, if possible, and that if they do, any policies at higher levels do not follow form to them.
Choice of law and arbitration: Many commercial insurance policies contain problematic choice-of-law provisions. The insurance companies’ favorite choice is New York law, which is worse for policyholders than the laws of most other states in certain respects. For example, under New York law, in most instances there is no cause of action available to corporations for an insurance company’s bad faith.
Many insurance policies contain mandatory arbitration clauses. Counsel should carefully weigh the advantages and disadvantages of litigation versus arbitration and review the specifics of any arbitration provision in policies under consideration.
Policyholders receive at least two potential benefits from resolving their coverage disputes through litigation instead of arbitration. First, all courts in the U.S. apply rules of insurance policy interpretation that are favorable in some respects to policyholders as the party that did not draft the contract. Most notably, insurance policy coverage granting provisions are to be construed broadly while exclusions are to be viewed narrowly, and ambiguities are to be resolved in favor of coverage. These rules are applied in some arbitrations, but their use is specifically prohibited under certain arbitration clauses, and in general, arbitrators are granted broad latitude under the law to depart from a strict application of legal precedent.
Manuscript provisions: Many insurance policies contain both standard forms and “manuscript provisions” drafted for a particular policyholder. Counsel should be involved in the negotiation of manuscript provisions for two reasons. First, such provisions must clearly reflect the agreement of the parties, since if a dispute arises over their meaning, the policyholder may not be entitled to application of the reasonable expectations doctrine, which holds that the insurance company provides the contract wording and must be held accountable for any ambiguity. Second, the participation of counsel in the company’s evaluation and drafting of such provisions might provide attorney-client privilege or attorney work product protection against disclosure of internal communications in a coverage action over the meaning of a manuscript provision.
Review applications: Counsel’s role is also vital in the insurance application process. It is important to ensure complete disclosure in insurance applications because material omissions can result in rescission of the insurance policy. Applications for insurance policies typically require disclosure of known claims, losses and risk exposures. Often, in-house counsel are particularly knowledgeable about those items and may be able to identify omissions in the disclosures prepared by risk management.
Evaluate coverage: Large and complex insurance claims almost inevitably involve issues of contract interpretation and other matters for which the policyholder requires legal expertise.
A coverage opinion from counsel should be obtained whenever an insurance company asserts, or it appears from the policy, that coverage may not be provided for an important claim. The application of insurance policy provisions to a particular claim is often unclear, and the meanings of numerous standard form clauses have been interpreted differently by the courts of different states. Therefore, determining which state’s law applies and researching applicable case law can be important to a coverage analysis. Moreover, whether an exclusion applies to a claim may depend upon a determination of the proximate cause of a loss, injury or damage – legal issues best addressed by counsel.
While brokers often have a productive role to play in the handling of the claim, they generally are not trained in insurance policy interpretation. They may be able to tell counsel how the insurance company typically handles the type of claim in question – but not how it should be handled.
The assistance of counsel is often needed to obtain a clear understanding of the insurance company’s coverage position because so-called reservation of rights letters often provide no meaningful information. Those letters typically lack any meaningful statement of facts relating to the claim and simply quote various insurance policy provisions as providing possible grounds for a denial, without explaining why they may be applicable. They also typically conclude with a blanket statement that the insurance company reserves all of its rights to deny coverage on any ground whatsoever. This type of letter is a self-serving effort to satisfy the insurance company’s obligation to promptly articulate the grounds upon which coverage may be denied, but it is deliberately vague in order not to limit its options. Policyholders need a clear and specific statement of any possible grounds for denial so they can provide additional information and assess their coverage. Counsel are often best equipped to demand meaningful coverage positions from insurance companies.
In conclusion, in-house counsel can help ensure that the insurance coverage purchased meets the company’s needs and that the protection paid for is not lost in the pursuit of a recovery. Brokers can provide vital assistance in fulfillment of these responsibilities, but their expertise is complementary to, not a substitute for, legal analysis and judgment.
]]>Advisor or Order Taker? Spell It Out
First, confusion or misunderstanding about what exactly is expected of a broker is a commonplace occurrence, and is far more likely in the absence of a written contract. A clear statement of the scope of services to be provided will go a long way toward the client receiving the coverage and services they want. The contract should not only identify the lines of coverage the broker is authorized to procure, but also clearly indicate whether the broker is expected to provide advice and expertise to assist the client in their selection of insurance or handling of claims, and to provide other services, as opposed to simply serving in the role of an order taker who shops for what the client has asked for.
This is important not only so the parties to the contract have a clear understanding of their roles, but also to indicate where responsibility lies if the insurance that is obtained, or services provided by the broker, turn out to not meet the client’s needs. In many jurisdictions, there is a legal presumption that a broker is merely an order taker and owes no duty to its client beyond procuring the insurance coverage that was requested or reporting that it was unable to do so. Further, a burden is often placed upon the client to read and understand the policies that have been obtained for them, even if the client has no expertise in insurance.
These presumptions have resulted in many clients who believe they are entitled to rely upon the expertise and advice of the broker finding that they have no legal recourse when their coverage turns out to not be what they expected. That predicament can often be avoided by entering into a written contract with the broker, which establishes the type of “special relationship” that some courts find necessary in order to impose liability upon a broker for obtaining inadequate or unsuitable insurance. In that regard, the agreement should specify that the client is relying upon the advice and expertise of the broker, and that the broker’s agreement to assume that role was a material consideration in its being retained. The broker may require a fee in order to assume the role of advisor, and if so, the client must decide whether it is worth the cost. While paying a fee on top of commissions or a higher fee than would otherwise be the case might be a burden, it will assist in establishing a “special relationship” with the broker should that ever be necessary.
Know Thy Broker: Insured? Incented?
Second, it is important for clients who work with small- or medium-sized brokers to confirm that the broker has sufficient errors and omissions insurance to be able to pay a malpractice claim. A services agreement should specify that the broker has and will maintain certain limits of E&O coverage and, at least at the beginning of the relationship, the client should ask for a certificate of insurance demonstrating that level of coverage
Third, a services agreement should also clearly explain the compensation that will or may be received by the broker from all sources. Broker compensation may include fees paid directly by the client, commissions paid for the placement of a policy, and other fees and commissions paid by the insurance company, such as contingent commissions, overrides, management fees or other payments intended to reward the broker for generating business for an insurance company.
The full extent of the broker’s compensation may vary depending upon which insurance company provides the coverage and therefore may not be known at the time a services agreement is entered into. So, the agreement should spell out the agreed fees, and address whether the broker will also be entitled to commissions or other payments from insurance companies, and whether the client is to be given a credit for any such payments. The client should require that any commissions or other payments be fully disclosed at the time that coverage proposals are submitted by the broker, so that the broker’s economic incentive to recommend one proposal over another is clear.
What’s Your Responsibility?
Finally, the services agreement should be clear about what is expected from the client. Service agreements that impose onerous obligations upon the client should be avoided. For example, a standard client services agreement used by one of the large national brokers provides that the broker will provide advice and procure policies, but that the client must review the policies and the broker’s work for any mistakes.
That clause recently was relied upon by the broker to contest liability in a malpractice case where the client alleged they were required to procure policies that provide defense coverage but failed to do so. The court rejected the broker’s argument that the clause required the dismissal of the client’s broker malpractice action, but left open the possibility that it could form the basis of a defense based upon the client’s alleged contributory negligence in failing to catch the error. Obviously, clients should reject any provision in a services agreement that could be interpreted to make them responsible for the broker’s errors.
Conclusion
The relationship with an insurance broker is every bit as important as those with suppliers and others with whom the client will ordinarily have a written contract. A services agreement with your broker can go a long way toward ensuring a satisfactory relationship.
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