November 19, 2015

Moving Insurance Policies to Perfection Over Time

Sophisticated corporate policyholders understand that insurance policies proposed by insurance carriers and insurance brokers are only the starting point for improvement. The reason for this is that policy forms, and most off-the-shelf enhancements to coverage, are expertly drafted by insurance industry lawyers with an eye towards decreasing potential coverage afforded under the policies. Policyholders, of course, want the opposite. But, policyholders cannot get to where they need to be without first consulting with policyholder-side insurance counsel, who not only understand the issues and case law addressing those issues, but who also has experience improving and broadening the policy language at issue.

Negotiate Insurance Policy Language For Better Coverage

Policyholders that accept language presented to them by their insurance broker often find that it comes back to bite them later, when a claim for insurance is made. Insurance policy reviews, correctly done, lead to better claims results, and a diminished need for insurance coverage litigation in the future.

Our goal when counseling our corporate policyholder clients on their insurance policies is to move their coverage toward perfection over time. The first step is to review policies on renewal and to propose a handful of improvements to the broker, who then provides those improvements to the insurance carriers. Chances are that the insurance carrier won’t agree to all proposed changes initially. However, if the insurance carrier is willing to accept even half of them into the policy the first year, the improved coverage will be far superior to what it would have been had a review not been undertaken. We then keep track of what changes were not agreed to, and work with the insurance broker to incrementally add improvements over time at each subsequent policy renewal. Using this incremental approach, policy language can be moved towards perfection over time.

Policyholders that follow this approach are rewarded if they are presented with an insurance claim. Better insurance policy language lowers transactional costs in getting that claim paid, and the better the language, the more quickly the claim will be paid. There is simply no substitute for what we call “good paper,” or appropriate policy language.

The relatively small investment corporations make to bolster policy language is always money well spent.

Here is the transcript of today’s video:

Our goal is to move insurance policies towards perfection over time.

Businesses are very cost conscious now and we found that there’s really two ways to deal with insurance issues. There is one way which is after-the-fact, which is actually quite expensive dealing with claims. If it’s a tough claim you have to hire a law firm and that law firm we hope would be us. Nonetheless you are going to have to pay that law firm and you’re gonna have to foot the bill at least until that law firm can prevail on a bad faith suit to get that money back for you, from the insurance company.

When you compare what it’s gonna take to hire a law firm to fix a claim, to deal with the policy language that’s not perfect to begin with and you compare that with what it’s going to take to get someone to review the policy, it’s very inexpensive to get a legal review of an insurance policy. And quite frankly, it saves you a lot of money in the long run. You can review it one year. You can improve it one year. We keep a list of what didn’t get done from the previous year, and you go to the next year and say here are the three things that they need to add on. And over time you move that policy to perfection. You are never going to get to that perfection by just letting the insurance company dictate what the language should be.

So our goal is to when we review a policy is to move them to perfection over time. For example we will put out a list of 10 things, these are the 10 things we want. The insurance broker takes those 10 things to the insurance company. The insurance company says we will give you five or six, but we’re going to hold back a little bit. So what will happen is that we will get six changed endorsements. We will get those, review them, all good. You know what? The coverage was here and now it’s here. So it’s getting better, but it’s not here. So than the next year, a very short job for us, but we know what the other four things were that need to get done. Using the same form, same endorsements,  hey, it’s renewal time what should we do. Well we had four things from last year, let’s give them the four things and see if they can move them.

So than that second year that carrier says will give you two of those four, so we’re getting even closer to perfection. Then the third year, there may be some case law that comes out that  just basically negates all kinds of areas of coverage and we need to get a big thing done and we will ask for that. And on top of that, just do those other two things that were just hanging out there. And the insurance company will say OK, we get it, you caught the big thing and we will give you that, but those other two are still out there.

But at any rate, it’s not every year costs as much as the initial year. It’s a process of moving things to perfection. When we do it for clients over a period of time, if they have a claim they are much better off. They do not have to worry about spending millions of dollars on lawyers to handle that claim, because the insurance company steps up to the plate and pays it. Why? Because they have good paper, good language. The language is what controls. If the language is good and the underwriter has accepted it, often times they will pay the claim.

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