In your professional or your personal capacity, you probably have several opportunities to consider whether to report something to an insurance company. In many instances, there would be very little downside and plenty of upside potential if you go ahead and tell the insurer. Here are 10 reasons why insureds don't report - and why those insureds may want to think again.
1. This demand letter is just an idle threat, and the allegations are meritless. The demand may come from an unimpressive lawyer, from an assistant regional manager of widget production or from an individual whose writing would get an F in elementary school. Or it may appear that there are no actual demands for monetary damages. You may be absolutely right that you will prevail against these meritless allegations. But it may still be expensive to defend. If you get frustrated after paying your lawyers for months of litigation that doesn't seem to be going away, you may be surprised your insurance company asserts that it is too late to shift the problem to your insurance company. It may raise the "late notice" defense to coverage and potentially may be able to defeat your claim for coverage.
2. It's already too late. This is the flip side. Others at your company were managing the lawsuit for months before bringing it to your attention, and they didn't notify the insurer. Don't give up. Even a seemingly lengthy delay is not necessarily too long under the circumstances. Also, many states consider or even require the insurance company to prove that it was prejudiced by late notice. If the insurer's interests weren't harmed by the delay, it may still have to cover the lawsuit.
3. It's cheaper to handle it ourselves because our premiums would go up. If you know what the additional premium will be, you're an actuary. An extraordinarily well-informed actuary. One who can accurately predict, at the outset of a problem, exactly what it will ultimately cost to resolve and the premium increase that would result. And therefore can state with confidence that the problem will be resolved for less than the premium would increase. That seems pretty unlikely. Property losses and third-party claims can become much more expensive than originally anticipated, far exceeding any premium hike imposed by an insurer as a result of the claim experience.
4. It's completely within the deductible or self-insured retention. This is similar to the previous reason, but it starts from the very real premise that, under some policies, the policyholder actually does have to handle at least some portion of the matter. If you can get a body shop to repair your car for less than the deductible on your auto insurance, you're probably right not to report it to your insurer. But if you have a CGL policy with a $100,000 Self-Insured Retention ("SIR") or deductible, there's a lot more to think about. Does the insurer have the "right and duty to defend"? Do defense costs count toward the SIR? Are plaintiffs making related claims arising out of a single occurrence, the costs of which can be aggregated to erode the SIR? While grappling with those questions, perhaps it would be wise to have put your insurer on notice.
5. I did give notice - under the current policy. That's great, especially if you gave notice under a "claims made" policy. But if the events happened or began in the past, one or more earlier policies may be applicable. It could be an "occurrence" policy, or it could be a "claims made" policy with an extended reporting period or "tail". Consider giving notice under all of them.
7. We're an additional insured, and the named insured knows about the claim. If the named insured is a co-defendant with you, or if you tendered the lawsuit to the named insured, good. The named insured should notify its carrier, and that may be enough to trigger the insurance company's obligations to you as well. But as an additional insured, you have the right to submit your own claim, and it's generally safer to do that than rely on the named insured to do it for you. Expect that the insurance company will assert that if it didn't receive notice from you regarding the claim against you, it probably can't help you.
8. We already chose to take coverage from another insurer. You read paragraphs 6 and 7, and you correctly determined that more than one policy covers the same claim. Great. You know that in your jurisdiction, you have the right to choose which of the multiple policies must defend and pay for the claim. Wonderful. But you may later need the other policies to kick in as well. You can tender to one insurer and give notice to the others at the outset. That notice should help preserve your rights under the other policies.
9. We don't have the policy. It's perfectly understandable that you don't have a particular policy, for example because the policy period was many years ago or because you're just an additional insured on someone else's policy. But that doesn't preclude giving notice, and you should anticipate that an insurance company will assert that is not a good enough response to a "late notice" defense. Your notice letter can even request that the insurance company send you a copy of the policy. If you're the named insured and the insurance company has the policy, it has to honor your request for a copy. And if you're an additional insured, you can ask the named insured and the insurance company for a copy. The worst they can do is say no, and if you wind up in coverage litigation, they'll have to produce the policy to you anyway.
10. I'm just filling out an application; I haven't even bought a policy. Answer all the questions on an insurance application completely and truthfully. Understand that if you are seen as having withheld or misrepresented information about a percolating matter, you run the risk that could doom coverage for that matter if it later develops into a real claim. It can even lead the insurance company to assert that it has the right to cancel or rescind the entire policy.
Recent Changes In Insurance Status Affects Companies Seeking Additional Insured Status
Friday, July 25, 2014
For those companies that are seeking additional insured status, keep in mind that there have been major changes in how that insurance status is written. The Insurance Services Office, the drafter of many "standard form" insurance policies and endorsements, has been paring back coverage for additional insureds for many years. It rolled out major overhauls to its standard form additional insured endorsements recently. Insurance companies, too, have been tightening their own company forms, to the extent that they don't use the ISO forms.
This area of insurance has evolved substantially over the years. As one commentator has noted: "Twenty years ago, additional insured endorsements came in two flavors: The short form and the long form. Today there are more flavors than found in Baskin-Robbins ice cream shop." 4 Bruner & O'Connor Construction Law, § 11:167. In fact, the ISO publishes 31 different types of additional insured endorsements; exactly the same number of flavors in Baskin-Robbins ice cream shops. We continue to see companies requiring that they be added as additional insureds to their co-parties' insurance without much thought as to what that means or what coverage they have as an additional insured.
When considering which form to use and what coverage is needed, companies should ask the following questions:
What forms are available?
- Which is best for the particular circumstances?
- Does the in-place insurance permit adding additional insureds? If so, are there any requirements, such as a written agreement?
- What coverage does the additional insured need?
- Is there a deductible/SIR? If so, who pays it?
- Is the additional insured covered for its own negligence? Does the law permit that?
- How does the additional insured confirm it has been added as an additional insured?
- How does the additional insured confirm what coverage is provided to it as an additional insured?
- Is the additional insured covered for completed operations?
- Is the additional insurance primary and non-contributing?
- Is there a professional services exclusion or other exclusions that might negate coverage for the additional insured?
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Improvements and Betterments coverage is a type of property insurance for an insured who is leasing space from another. It is common for a tenant to lease commercial space from a landlord and require permanently installed fixtures or makes improvements in order to carry on operations. The tenant does so at their own expense. The landlord will often provide the insurance coverage on the building shell, but the tenant will need to maintain the coverage under their insurance policy. Because these improvements and betterments are permanently installed, they are covered under the tenant's policy separately from the tenant's personal property coverage.
The issue the landlord should be aware of is what happens when the tenant leaves? Improvements and betterments are permanently attached the building. The Landlord must take care when addressing these issues with the next tenant. There are two criteria in order for improvement and betterment coverage to qualify for coverage on ISOs commercial property and businessowners forms. The alteration must be part of the real property (building) and must be "made or acquired" at the tenant's expense. If the next tenant enters into a lease requiring them to carry the improvements and betterments, would they meet the criteria for the improvements and betterments coverage? The answer is no! They did not make or acquire the improvements at their own expense.
This issue could be resolved by providing the coverage under the building coverage and having the coinsurance clause suspended on the limited limit. Understanding the exposures assumed in a lease and how the tenant's policy responds is critical in preventing an uninsured loss.
Contact info@myCOItracking.com for cost effective solutions on how to track and manage your Certificates of Insurance.
Case: Johnson Controls, Inc. v. London Mkt., No. 2007AP1868, 2010 Wis. LEXIS 45 (June 24, 2010)
Issue: When does an umbrella or excess liability policy not follow form?
Claim: A manufacturer purchased three layers of excess coverage through Travelers and a fourth layer through a group of London insurers. The manufacturer was identified as a potentially responsible party for a $150 million pollution claim and filed suits against insurers that refused to defend. Travelers settled and paid an amount less than the full underlying limits. The London insurers were then looked at for excess defense coverage. The London insurers argued that its high-level excess policy was for indemnification only and that it did not have a duty to defend.
Results: The Supreme Court of Wisconsin did review the policy and agreed that the insuring agreement did not state a duty to defend; however, it did contain a following form provision. The Travelers form stated that Travelers "shall have the right and duty to defend any suit against the (manufacturer) seeking (covered) damages." Based on the following form provision on the London's policy, the duty to defend would apply. The courts looked next at the "except as otherwise provided herein" under the London's policy follow-form provision. This would "turn off" any follow-form provision in any situation where there was an inconsistency between the Travelers and London policy terms. The courts found that the Travelers policy provided duty to defend, but the London policy was silent on the issue. There was nothing inconsistent between the two policies to stop the incorporation of the duty to defend provision into the London policy.
Most contractors have a standard practice for obtaining an additional insured status under other parties' liability policies. It is still common for contractors to require the additional insured coverage to extend to completed operations. This standard practice protects the contractor and owners from losses that occur during the course of construction as well as claims arising out of the completed project (damages found after the project is completed).
The Insurance Services Office, Inc. (ISO) and others in the industry advised that it was never the intention for the insurance industry to provide additional insureds with completed operations coverage. In 1993, ISO changed the coverage provided to additional insureds by revising many of their additional insured endorsements. They specifically revised the endorsements by removing the "your work" reference. This change would rule out the additional insured claims for completed operations. ISO amended their additional insured endorsement to apply only to the liability arising out of the contractor's "ongoing operations" for the additional insured. This caused a huge gap for many and forced ISO to correct this. In 2001, ISO developed an additional insured form that provided coverage for completed operations.
What does this really mean? Often times damage resulting from a subcontractor's work does not arise for years after the work has been completed. When that claim occurs, a suit is often filed against both the general contractor and the subcontractor. The general contractor will tender the defense back to their subcontractor. Assuming the loss is a covered loss and filed in a timely manner, the coverage afforded the general contract by the subcontractor is dependent upon the additional insured endorsement issued. If that subcontractor has the general contractor listed as an additional insured for their "ongoing operations" only, the general contractor will have no coverage under the subcontractor's policy. If the subcontractor has the general contractor listed as an additional insured for their completed operations or "your work", the general contractor may have coverage under the subcontractor's policy.
Although the contractors still require the additional insured status to respond to completed operations claims, they are continuously faced with the challenge of understanding if the correct additional insured endorsement and wording is used.
Contact Christine Lang at Christine@myCOItracking.com for cost effective solutions on how to track and manage the additional insured status on your certificates of insurance.
The process of tracking and managing certificates of insurance takes time and can be very complex. The amount of resources drained on this task often leaves companies asking, "Does tracking my incoming certificates of insurance really make a difference?"
Ask any CFOs, Legal Advisors, or Risk Managers this question and you will find a common answer - it eliminates risks that can have a financial impact on their company. Most companies issue contracts that contain basic information including the product/services being required, payment obligations, indemnification agreements, and insurance requirements. These insurance requirements are designed to reduce litigation and financial exposures. If you are collecting certificates just to confirm they were received, there is no guarantee that the requirements have been procured. Tracking and managing certificates of insurance to confirm all limits, endorsements, and insurance requirements are in place provides the most impact. This allows your business to transfer costly litigation and/or other exposures to your vendors (subctontractors, suppliers, tenants, etc.). Therefore, tracking and managing certificates of insurance does have significant impact on your company's litigation expenses and financial exposures.
Email Christine Lang for cost effective solutions on how to track and manage your certificates of insurance.