Last week, two of my partners and I gave a presentation to the Japan-American Society of Georgia on Finding Buried Treasure in your Insurance Resources, a subject covered previously on this blog. The presentation included discussions of the difference between "occurrence" and "claims made" policies, and why decades old occurrence policies may still potentially provide coverage for "long tail" environmental and asbestos claims. We also discussed the potential value of the defense obligation under many liability policies, an obligation that may save insureds hundreds of thousands of dollars or more. The presentation also covered how modern commercial general liability (CGL) policies are not so general any more, due to the ever increasing number of exclusions added by carriers. Therefore, particularly in this age of "a la carte" coverage, it is more important than ever to have an experienced insurance agent who takes the time to understand your business and its risks and to procure the necessary coverage. We also discussed common sense steps policyholders can take to maximize their insurance resources.
The presentation included a very lively discussion, which, unfortunately, cannot be reproduced here. However, you can access the slides here.
In an earlier post, I discussed the growing efforts of insurers to exclude and endorse away coverage under commercial general liability (CGL) policies. Because CGL policies are often marketed as a first line of defense for businesses, policyholders need to make sure that they understand the limitations on their CGL coverage. An experienced agent or broker can often assist in plugging the gaps that often exist in CGL coverage, either by obtaining endosements that limit exclusions or through coverage designed to cover specific risks.
I want to make clear, however, that a policyholder should never accept at face value an insurer's determination that a claim is not covered under a CGL policy (or any other policy for that matter). Because CGL policies are written in general terms, because most courts construe ambiguities against insurers, and because most courts interpret exclusions narrowly, insurers are not always successful in their efforts to limit coverage.
For example, earlier this year, the Supreme Court of Georgia rejected an insurer's argument that negligent construction was not an "occurrence" under a CGL policy. This decision was in the face of a number of prior decisions from the United States District Court for the Northern District of Georgia that had accepted the argument. Because the Supreme Court of Georgia has the last word in interpreting Georgia law, this contentious issue has now been decided in favor of Georgia policyholders. The law in other states varies.
Similarly, notwithstanding the breadth of the so-called "absolute pollution exclusion," it may be possible to obtain coverage under a CGL policy when a carrier denies a claim based on this exclusion. Carriers may have overplayed their hand in some instances in arguing that various substances are "pollutants." For example, the Georgia Court of Appeals declined to apply the pollution exclusion to a claim involving injuries caused by exposure to natural gas.
It goes without saying that every case is different and largely depends on its own facts. The law often differs from state to state. However, despite their efforts to restrict coverage, many carriers have been ordered to pay claims under CGL policies that they tried to deny. As stated, never accept at face value a carrier's determination that a claim is not covered.
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.