Insurance Coverage: 4 Rules And 10 Tips For Policyholders

From John DeGroote’s Settlement Perspectives

When the big case comes in, will you be ready for it?  As you work to better understand your story, lock down your documents, and brace for the PR impact, what else do you need to worry about?  Unfortunately insurance coverage is often way down the list — a mistake most don’t realize until it’s too late.

Recently the ACC Docket featured a piece that Wendy Toolin Breau and I coauthored on managing insurance relationships in the midst of significant litigation, entitled “‘Bet the Company’ Litigation from a Policyholder’s Perspective”.  Although you may want to read the entire article when your next big case comes in, the 4 rules and 10 tips we discuss appear below.

Preserving Insurance Coverage:  4 Rules

Insurance is a practice area unto itself, and there are few rules that apply in all situations.  But I have never seen an exception to these four:

1. Always act like a reasonably prudent insured. When confronted with a decision, what would you do if you were not insured?
2. Never try to outsmart yourself. Never rely on colluding with the plaintiff to secure coverage, force an argument, or characterize one claim as something it’s not.
3. An insured cannot sue for bad faith without acting in good faith. How will your actions look with hindsight when the urgency has passed and emotions have ebbed?
4. Insurers hate surprises. Communication is key.
   

Apparently I’m not the only one who thinks this way.  As I discussed these rules with Philip J. Loree Jr. at the Loree Reinsurance and Arbitration Law Forum the other day, I learned that they don’t only apply to policyholders –  apparently insurers must live by these same rules to collect from their reinsurers:

You would be surprised how frequently reinsurers contend that the carrier colluded with the policyholder in direct insurance coverage litigation. If the reinsurer can establish collusion concerning the fact, amount or allocation of coverage, or if the reinsurer otherwise shows that the carrier acted in bad faith, then the reinsurer will usually be relieved of liability for the claim. Like policyholders making direct insurance claims, carriers making reinsurance claims need to avoid even the appearance of collusion or bad faith, and following rules analogous to yours helps them do that.

With these 4 rules in mind, there are a few more tips to guide your relationship with your carriers in major litigation.

10 Tips for “Bet the Company” Litigation

1. Know Your Policies and Your Carriers before a Crisis Arises. Knowing the policies — including where they are — is critical, but having a personal relationship with my carriers is yet another Secret the Two Million Miler Club Taught Me.
   
2. Know Your Case.  And Know It Early. Yet another reason we have an entire series on Early Case Assessments.
   
3. Once Disaster Hits:  Notice, Notice, Notice. No insured can afford to have a “foot fault” when notifying its carriers, but it happens all the time.
   
4. Know Your Coverage Issues before the Case Progresses. Coverage is neither easy nor intuitive — for me, coverage counsel is often the best option.
   
5. Know Your Team. How often have you taken a few months to get to meet everyone on your team — defense counsel, coverage counsel, internal witnesses, experts and more?  Wouldn’t they have worked better together had they met early in the case?
6. Overcommunicate.  Early and Often. Establish a regular communication protocol, comply with it, and go beyond it.
7. Agree.  Or Agree to Disagree. Sometimes you have to litigate your case while the coverage discussion proceeds, but avoid it if you can.  If you can’t resolve your coverage issue early, follow these 4 rules and 10 tips and it’ll make your life much easier.
8. Settlement:  It’s Never as Easy as You’d Think. Remember that your carrier will have rules and protocols about how settlements can be approved, and in what amounts — and it’s never a quick process.
9. Simultaneous Settlement Talks and Coverage Negotiations:  It Can Be Done. This isn’t for the faint of heart, but you can solve for more than one variable at one time.  If you plan to mediate both disputes simultaneously, a mediator experienced with complex insurance issues — who can also address the merits of the underlying case — is a must.
10. Resume Your Relationship with Your Carriers and the Insurance Markets When Your Case is Done. This just reinforces tip #1, above.

When your next big case comes in, think about these 4 rules and 10 tips, and take a look at our article for more detail.  You’ll be glad you did.

                       

John DeGroote

John serves as a mediator and arbitrator in complex business, technology, and intellectual property matters involving parties and interests around the country and beyond — often before litigation is filed. Prior to his service as a mediator and arbitrator, John served as the lead settlement negotiator in hundreds of cases,… MORE >