The commercial general liability ("CGL") policy has been a staple insurance product and a cornerstone of many companies' risk management programs for many years. Consistent with the name ("general" liability insurance), this coverage is often sold, sometimes in conjunction with "umbrella" policies, as covering "everything else." What is "everything else?" For a small to medium-sized business, this may be interpreted to mean "everything" not covered by worker's compensation, automobile, and perhaps employer's liability coverage. The reality is that insurance company claims adjusters and coverage attorneys often interpret CGL policies so narrowly that it is difficult to determine what, if anything, would be covered. These narrow interpretations are buttressed by many exclusions that insurance companies add to CGL policies, either in the body of the policy or by endorsements that are stapled to the policy form. I recently reviewed a CGL policy issued by a major insurer that was endorsed with almost 20 exclusions. Here is what happens in the real world: Insurers are forced to pay for losses under CGL policies that result in substantial losses. After a round of losses, the insurers endorse new or renewed policies to include "absolute" exclusions. Examples of this behavior include the absolute pollution exclusion adopted in the 1980s in response to environmental claims, and, more recently, fungus exclusions adopted in response to mold claims. Insurers are now trying to avoid losses related to electronically stored data and cyber liability (watch for posts on this burgeoning area in coming months).After restricting coverage under CGL policies, insurance companies will often begin writing "special" coverage to cover the now-excluded losses, but at an additional premium, of course. For example, many insurers now sell environmental impairment liability coverage.It never ceases to amaze me the lengths that insurance companies will go to in denying claims. With respect to CGL exclusions, one of the favorite exclusions that claims adjusters like to raise is loss "expected or intended" by the insured. It is not surprising that losses that are truly intentionally caused are not covered. However, many carrier representatives seem to believe that if a loss was conceivably foreseeable, it was "expected or intended."Another favorite is the pollution exclusion. Claims adjusters are often very creative when it comes to arguing that accidents were caused by "pollutants." These arguments are buttressed by the definition of "pollutants," which are defined generally as "irritants" or "contaminants." Because just about any substance can, in the appropriate circumstances, be an "irritant" or "contaminant," the definition encourages claims adjusters to take aggressive positions in denying claims. Unfortunately, some courts have accepted these positions, while other courts have not.If a carrier denies a claim based on exclusions, do not assume all is lost. Courts often do not uphold the interpretation advanced by the insurance company. Before you accept a denial, see a policyholder's coverage attorney.Here are the immediate takeaways from this post:
- Do not assume that your CGL policies covers "everything else."
- Make sure that your agent or broker walks you through each of the exclusions.
- Be sure that your agent or broker goes over any additional coverage that you may need to plug any gaps.
- Do not accept the insurance company's determination that a claim is not covered. See a coverage attorney.
Over the years, many of my clients have been manufacturers and distributors, many of them international companies. One of the most fundamental principles of risk management for these companies is to make sure they have a well structured insurance program. Having adequate insurance literally makes doing business in the U.S. -- notorious for its litigious nature -- possible.International companies considering doing business in the U.S. are often told they need an accountant, and turn to an accountant to set up their business. In my view, using only an accountant is a fundamental mistake. In reality, a company doing business in the U.S. needs to engage three professionals: a business attorney, an insurance broker or agent, and an accountant. Ideally, these professionals should work together to limit the company's business risk. The same is true for new domestic companies.This blog, however, is about insurance, so let's focus on that topic. Insurance companies make the promise of protection. Insurance companies often design and promote new products to deal with unique risks. Just this morning, I found announcements from insurers or brokers offering comprehensive pollution coverage and coverage for Foreign Corrupt Practices Act Liability. I also found an interesting piece about why privately held companies are considering (and need to consider) directors and officers liability coverage. Note: I provide links to these announcements only for informational purposes. I have not analyzed any of the products mentioned and do not endorse them. The reader must investigate any insurance product or service at its own risk.Although it is a good thing that insurers and brokers are developing new products that can assist businesses in controlling risks, I must sound two words of caution. First, the reason that companies are coming out with these focused products is because they have tried to limit the coverage available under more traditional coverage, such as commercial general liability ("CGL") policies. I often see CGL policies that are so limited by exclusions and endorsements that calling them "general" liability policies borders on absurdity. Second, even when these newly designed policies clearly provide coverage, that does not mean the claims department will acknowledge coverage. Here's a little secret about insurance companies: There is often little coordination between the underwriting department and the claims department. When underwriters design coverages for non-traditional risks and to bring in new premium dollars, it seems they do not tell the claims department. When the claims come in, as they inevitably will, the claims department may ignore the broader grant of coverage and deny the claim. I have seen this happen. If this happens, call an insurance coverage lawyer.So there it is: Love and hate. I love insurance companies because they allow businesses to limit and control their risks in a litigious environment. I hate them for trying to endorse away their general coverage and when the claims department does not live up to the promises of the underwriters.
As anyone who watches television knows, insurance companies portray themselves as offering the promise of protection: An umbrella for a rainy day or a fortress safeguarding against attack. When insurance companies treat their policyholders right, there is no greater resource. And make no mistake about it, no business should be without a carefully implemented insurance program.
Unfortunately, the promise of protection -- illustrated by the photos on the left and right sides of the banner -- is often undermined by hiding behind the fine print when a claim arises (illustrated by the middle photo in the banner). Dealing with insurance companies often ranges from mildly frustrating (such as the seemingly unavoidable slow pay problem) to downright infuriating (such as outright denials of coverage when there is no reasonable legal basis).
Dealing with an insurance company can be a daunting proposition. Insurance companies can marshal legions of claims adjusters and lawyers, many of whom are particularly adept at hiding behind the confusing and often ambiguous language in which insurance companies choose to write their policies. Some adjusters and insurance company lawyers seem genetically incapable of answering the policyholder's most fundamental question: "Am I covered?" Others will answer this fundamental question, but the answer is invariably "no!"
This blog is meant to be a resource for business policyholders: Businesses that purchase insurance coverage based on the promise of coverage and pay the premiums the carriers are always so willing to accept. If there is one message that I hope this blog will help establish, it is this: Do not blindly accept your insurance company's statement that a claim is not covered or may not be covered.
Do not be cowed by the fact that the denial comes in a certified letter (as they always do) and is signed by a "senior claims examiner," "Vice President of Claims," or an outside lawyer. The truth is often that these folks are often wrong. They know that some percentage of insureds (and probably a large percentage) will simply shrug their shoulders accept the insurance company's determination. If the claim has any significance, it is almost always worth having an experienced coverage lawyer take a look.
We will get into more detailed issues in later posts. However, since this is the beginning, it's probably a good idea to start with a little fun. Although there is often little humor in the insurance coverage business, Monty Python's venerable skit about the "Never Pay Policy" is always worth a look. Be sure to watch the whole thing.
For a podcast from a while back when I was at another firm discussing the "Never Pay Policy," click here.
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