You paid for it, now use it.
August 10, 2009
Most businesses buy insurance. It may be as simple as malpractice coverage, or a commercial general liability policy. But often times insureds fail to take advantage of the coverage for which they paid. This article aims to make sure they do.
Lawyers who represent policyholders often like to say that policyholders pay their premiums to retain the privilege of battling the insurance company for coverage. The fact is that, if your company pays premiums for an insurance policy, you ought to make sure you get the best use of it. Whether that requires a fight or not, it is a losing battle without some basic due diligence.
Check the Policies
The first step is knowing that insurance coverage may be out there. Too often CPA companies either do not check their coverage, or do not realize that they have coverage. Indeed, one of the first questions your firm's leaders should ask themselves when faced with a loss or lawsuit is: Do we have insurance? It is a simple question, although not always answered simply. But failing to ask may result in foregoing or limiting the insurance for which the company paid.
Part of the problem is that there are myriad insurance policies issued these days and some policyholders never read their policies. Even reading the policy may not answer the question, as it may not be apparent that the policy language covers a loss.
For example, a company sued for trademark infringement might be covered by a policy's "advertising injury" coverage. As another example, an individual sued for defamation might not think to check his or her homeowner's policy for coverage. But homeowner's policies often provide coverage for "personal injury," which includes defamation. Has there been an employee theft? Perhaps the company has a fidelity bond policy that provides coverage. The examples are endless; but if you don't know your coverage, then you won't be able to take advantage of it.
Check More Policies
Oftentimes it is not enough to check the company's own policies. Also consider whether the company might be insured under another company's policy, either as an additional insured or otherwise. For example, if your company enters into a contract that requires the other party to indemnify your company for certain actions, the other party's insurance might cover a loss resulting from those actions. Other times, a company will expressly obligate the other party to obtain an insurance policy that includes the company as an additional insured. Thus, the coverage inquiry should not necessarily be restricted to the company's own policies. Consider who else's policies might provide coverage, including parent companies and related entities. Of course, prudent CPA companies will already be tracking this information.
The insolvency of a company will usually not affect its insurer's obligations to the company or a third-party suing the company. This is a good thing, because this is when insurance is needed most. So, just because your company or another company under whose policies you are covered may be insolvent, don't ignore the potential coverage. Also, even if a lawsuit filed against the company makes baseless or false allegations, if the allegations trigger coverage, the insurance company may nonetheless be obligated to defend the company.
Most policies require the insured to provide the insurance company with notice of a claim as soon as practicable, or often within a specified time period. Failure to do so can result in a loss of coverage, or at least give the insurance company an argument to deny coverage. To avoid arguments like these down the line, it is best to investigate potential coverage as soon as a loss or lawsuit occurs.
Don't Take No for an Answer (Unless It's the Right Answer)
It should come as no surprise that insureds and insurers often litigate coverage issues. Sometimes it is because an insurance company improperly denies coverage; other times it is because no coverage really exists. And then there are all the cases in between.
Insurance policies are written with certain risks in mind. But insurance policies are really just written contracts (albeit contracts that often have their own rules, regulations and jargon). Like most contracts, insurance policies are unable to address every situation that might arise. This is particularly true as society continues to undergo technological and other changes. For example, many policies now contain certain standard coverage provisions and exclusions relating to the Internet.
Because few policies, if any, address or anticipate ever contingency, litigation abounds over coverage issues. And while insurance companies are reluctant to provide coverage under an existing policy for claims that they never thought would fit into the coverage provided, that does not mean they aren't obligated to do so. This is particularly true because policies are often construed in favor of coverage for the insured (the theory being that the insurance company almost always drafts the policy language and is best suited to avoid contract interpretation issues). Thus, if the insurance company at first denies coverage, that is of course not the end of the road.
Reasons to Forego Coverage
While it almost never hurts to notify your insurer of a potential claim, there are some exceptions. For example, policyholders are sometimes concerned that notifying the insurer of a potential claim will affect their premiums or renewal of the coverage. And providing an insurer with notice of claim will sometimes prompt the insurer to file a proactive lawsuit seeking a declaration that its policy does not provide coverage (although this may also signal that the insurer is concerned coverage exists). Accordingly, there may be situations in which, upon reviewing the policy language, an insured appropriately decides to forego making a claim.
Insurance is an important business tool. But like any tool, CPA companies need to know how and when to use it. By doing so, your firm can reap the full benefits of the premiums they pay for coverage.