Finding and Using the Right Team for Insuring Your Business

There may be no legal topic more important, but less understood, than insurance. Most businesspeople understand the critical need for insurance and acquire coverage intended to address their particular risks and exposures. However, few businesses take the steps they should to maximize the benefits of their investment in insurance, and few understand their policies well enough to effectively assert their coverage rights when losses occur.

While insurance can be complicated, the steps businesses should take with respect to insurance are not. There are two professionals every business should consult before they purchase insurance. The first is an insurance agent or broker. There are many different coverages, products, and companies– and decisions to be made about each of those things,

Bill Nolan (left) and Adam Hollander of Barnes & Thornburg LLP

as well as appropriate deductibles and policy limits. You don’t have time to be an expert on these issues, but you cannot afford not to have an insurance expert on your team.

Choosing your insurance professional is an important business decision. We have seen agents who seem to simply collect their commission on the premiums, give little if any advice about purchasing decisions and, when you have a claim, appear to be squarely on the side of the insurer and not advocating for you, their customers. Of course, there are many fine insurance professionals; be sure that you find one. You should:

• Meet with at least two prospective agents to get different perspectives on how to address your needs.

• Send follow up inquiries by e-mail and ask that the broker respond in kind. A client had a broker we referred to internally as “squishy” because he never seemed to give a straight, understandable answer. Get a broker who has the confidence to give you clear answers and put them in writing.

• Ask the broker: If I disagree with the insurance company about what the policy provides in the event of a claim, who do you work for? How will that work?

The second professional you need need to talk to is your lawyer. Among other things, your lawyer can help you “test” your broker by raising questions you need answered about the proposed policies. More important, few proactive investments in your lawyer’s time may be as valuable as having the lawyer read your insurance policies before you write your check. Insurance contracts invariably are long, complicated documents, and rarely are written so a layperson –even a savvy businessperson– will understand them. A lawyer experienced in reading these documents will see things you will not.

As with most products and services, you have the greatest bargaining power before you buy it. For example, in our experience, it is relatively easy at the time of purchasing insurance to procure an endorsement that allows you to hire the lawyer you already know and like in the event a claim is filed that is, at least arguably, covered by the policy.

Yes, it is in our self-interest to point this out– but is in the business’s interest as well. Do you want a lawyer you have already identified as the right one for your company and one who has undivided loyalty to you, or a lawyer you never met who is assigned by the insurer, paid by the insurer, and who likely has strong business and other economic allegiances to the insurer?

It is more difficult to make such a request after you have bought the policy and are seeking to utilize your coverage. An experienced insurance lawyer should be able to flag several aspects of the policy you may be able to improve to your benefit prior to purchase.  Or, if you cannot, to see if another insurer can.

Having said that, if you do have a claim and give notice to the insurer, approach the response from the insurer with a critical eye. If you make a claim on your insurance policy, you will typically receive a letter from your insurer setting forth its view of the degree to which the policy applies to the claim, and any limitations on that. Sometimes the limitations are significant. Also, the letter will tell you how the insurer proposes to handle the claim.

It is a mistake to take such letters as gospel. The insurer is stating its interpretation of the policy language as applied to a particular situation, but that interpretation is often subject to different views. Both the policy language and the specific facts behind the claim may not be clear, so there is often much room for debate. Moreover, the position that the insurer takes regarding the defense of any claim may trigger rights that you would not normally know exist.

Likewise, the fact that the insurer tells you how the claim is going to be handled −the assignment of the lawyer, for example− does not mean you do not have the ability to make other arrangements with the insurer. Tell your broker and/or lawyer what you want and get them to advocate for you. If the broker will not do it (despite the care you took at the purchase to see that he/she would), then it is time to start thinking about a new broker at renewal time. They may not win every argument on your behalf, but make them show you in writing that they made the effort.

Insurance should be a partnership between your business, your broker, and the insurer, allowing each of you the ability to profitably pursue your respective businesses. Find a team that works with you to accomplish that.