Companies purchasing new insurance coverage or renewing existing insurance policies often have more power than they might realize to improve their insurance policies. Before coverage is bound, insureds may have leverage to negotiate with insurers for more favorable policy terms, conditions, and exclusions. Here are just four areas that potential insureds should consider before a policy is issued.
- Notice Provisions
Some policies have very broad notice provisions that may create operational difficulties for the insured. They also may impose responsibility on numerous, disparate individuals throughout the insured organization, which might lead to policy compliance difficulties and coverage issues.
For example, some policies require the insured to give notice of a claim when any of the following individuals has knowledge of a claim:
The Organization’s President; members of the Board of Directors; executive officers, including the Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer; General Counsel, staff attorneys employed by the insured organization; Chief Information Officer; Chief Security Officer; Chief Privacy Officer; Manager, and any individual in a substantially similar position as those referenced above, or with substantially similar responsibilities as those referenced above, your respective of the exact title of such individual and any individual who previously held any of the above referenced positions . . .
Insureds may want to push back on such broad conditions and more narrowly prescribe who’s knowledge will be relevant in connection with providing notice. Limiting that group to the Risk Manager, General Counsel, and/or Chief Financial Officer may be a much better option for many companies.
- Soften the Hammer
Insurance policies routinely prescribe how settlements with third party claimants should be handled. That type of provision is often referred to as a “hammer clause.” Some policies give the insurance company 100% discretion over when a claim should be settled, even if the amount of the settlement falls entirely within the insured’s retention. Companies should consider if they would prefer to exercise more control over settlements they themselves are funding. If so, they may be able to modify the hammer clause before the policy is issued.
- Actions Against the Insurer
Unfortunately, coverage disputes sometimes arise and insureds may want to seek judicial intervention. It’s important to note, however, that policies frequently contain limitations concerning when an insured can file a coverage action against the insurer. For example, there may be a waiting period (i.e., 90 days) after a mandatory mediation is terminated or after the final amount of the disputed claim is resolved. Some policies provide that the insured may not bring an action “until the amount of the Insured’s obligation to pay shall have been fully and finally determined with by judgment against them or by written agreement between them, the claimant and the Insurer.”
For an insured that is paying ongoing defense costs in litigation with a claimant, delays in coverage determinations and payment of covered claims can be quite burdensome, or worse. Insureds therefore should consider negotiating for less restrictive policy terms in this regard.
- Scope of Exclusions
When describing the types of coverage provided by any insurance policy, insurers typical note that coverage is provided “for” certain types of losses. But when describing losses that are excluded, very different language typically is used.
Instead of stating that there is no coverage “for” a specified loss, for instance, the policy may state that coverage does not apply to a claim “for, arising out of, or resulting from” the loss. Or the policy may bar coverage for claims “alleging, arising out of, based upon, or attributable to” the loss. In certain circumstances, the scope of that type of provision may be substantially broader and open to dispute.
If this issue is raised with the insurer prior to binding coverage, an insured may be able to negotiate for more narrow introductory language, at least for some key exclusions.
How We Can Help
We help insureds identify potentially problematic policy provisions like those discussed above in various insurance policy forms and, leveraging your broker’s expertise, work to negotiate for more favorable policy terms and provisions to better suit the insured’s needs.