Is Your Insurance Company Really On Your Side?

February 2016

California Grocer, Issue 1

In the grocery industry, many unfortunate events – from product liability issues to slip-and-falls to accidents involving company vehicles – can occur.  Some people believe that insurance provides protection from all of these occurrences.

This belief can be reinforced by insurance advertisements providing assurances that you are “in good hands” or that your carrier is “on your side.”  Based upon my experience, having worked both for and against insurance companies, nothing could be further from the truth.

Sure, some insurance companies are better than others when it comes to rates, claims handling, and customer service, but at the end of the day the issue of whether there is coverage for your particular loss will turn solely upon the terms of your insurance policy – which is a legally binding contract between you and your carrier setting forth the rights and duties of the parties in such a convoluted manner that even many lawyers are left baffled.

Even when an insurance policy provides “coverage” for a particular loss, one or more of the numerous “exclusions” in the policy will often eliminate coverage.

Like any other contract, terms of an insurance policy are often susceptible to different interpretations. For those insurance companies willing to sacrifice reputation and ethical business practices for profits, it is not uncommon to deviate from the plain meaning of an unambiguous policy term, or resort to an absurd interpretation, to come up with some specious reason why your particular loss is not covered (or is excluded from coverage) under your policy.

You will then receive a lengthy “denial of coverage” letter, which to most people is as incomprehensible as the insurance policy itself. The unfortunate reality is that many people simply tuck this letter away in their file cabinet and absorb the loss themselves – after all, your insurance company is “on your side” and would not say there is no coverage if in fact coverage exists, right?

As this cycle continues, the advertisements through which some of those insurance companies gain their customers’ trust and confidence continue to pay for themselves several times over.

Not all insurance companies go out of their way to deny coverage, but it is important to remember that insurance companies in general  are running a business for one sole purpose – profit. Some play fairly, while others – as evidenced by the thousands of published legal decisions in which insureds have prevailed in lawsuits for wrongfully denying coverage – employ aggressive or questionable strategies designed to increase their bottom line to the detriment of their unwitting insureds.

If you were in a contract dispute with a former business partner, you would never agree to be bound by whatever interpretation your adversary gave to the contract terms. Nor would you agree to allow your adversary to decide whether you will win or lose the case.  Be sure to use the same logic when dealing with a claim submitted to your insurance company.

Having witnessed the common and costly mistakes that could have been avoided by insureds, consider these tips when dealing with your insurance:

1. Work closely with your insurance broker and select a reputable insurance company.

Ensure that you have the type of coverage you need for your particular business and appropriate limits of insurance to sufficiently cover your risk exposure. Inquire into the reputation of the insurance company proposed by your broker.

Have your insurance policies reviewed thoroughly prior to each renewal to ensure they continue to meet any changing needs of your business.

Your insurance broker should fully understand your business so that appropriate coverage can be procured.  For example, you do not want to find out after you get served with a lawsuit arising from a foodborne illness that you do not have products liability coverage. Modifications to standard form policy provisions can often be negotiated with insurance companies through policy endorsements, so there is no “one size fits all” when it comes to insurance.

In taking the time to explain your insurance needs to your broker, avoid any confusion by providing a summary of your business, along with what you need and want, in writing.  In the event a future claim reveals that your broker failed to procure the requested or appropriate coverage, the written communications will make it much easier to have any gap in coverage filled by your broker’s own errors and omissions insurance policy.

2. Avoid pitfalls by consulting with your own coverage counsel immediately upon learning of any potential claim.

First, many insurance policies provide a short time period by which the insured must provide notice of a “claim” to its insurer, and those policies broadly define the term “claim” to include demand letters and events other than lawsuits. Thus, if you wait until you receive a lawsuit before notifying your insurer, you may give your insurer an additional basis to deny coverage.

Second, insurers often respond to notice of a claim with a “reservation of rights” letter – a fancy phrase for letting you know that the insurer will appoint insurance defense counsel to represent you in the underlying lawsuit while it continues to investigate the facts and is otherwise able to confirm or deny the existence of coverage.

Sometimes, the facts relevant to the issue of coverage can be developed by insurance defense counsel in the underlying lawsuit through the discovery process, thereby creating a conflict of interest between you and your insurer. To ensure that insurance defense counsel proceeds through the discovery process in a manner that is unbiased on the issue of coverage, your own coverage counsel will advise you as to whether the insurer is obligated to provide you with separate counsel (known as “Cumis counsel”) at the insurer’s expense and, if so, will make the demand upon the insurer.

Finally, even in those situations in which your insurer agrees to provide coverage, you will want your own coverage counsel if your exposure in the lawsuit may potentially exceed your policy limits. Imagine that you are a defendant in a lawsuit in which $3 million in damages is sought by the plaintiff, and your policy has coverage limits of only $1 million, leaving you personally exposed to an excess judgment.

Although California law obligates insurance companies to accept “reasonable” settlement demands within policy limits in order to avoid exposing their insureds to personal liability in excess of those limits, there is often a dispute as to what is “reasonable.” Retaining personal counsel to continue placing pressure on the insurer to settle in these situations is usually money well spent.

If there is one thing to remember, it is this –  insurance companies are not always “on your side,” so every step of the way you should watch out for yourself. Expenses incurred by insurers in paying losses and/or defending their insureds in lawsuits – the exact reasons why we obtain insurance – cut directly into their bottom line and pose an unavoidable conflict of interest.

While many people in the insurance industry will candidly tell you that insurance policies often exclude more losses than they actually cover, following these tips will help you maximize the benefits of your insurance.