Tag Archives: Coverage Issues

Book Review: General Liability Insurance Coverage by Maniloff & Stempel

Posted on by
3

Rather Play Games Then Read State By State Law on General Liability Insurance Coverage?

Let’s face it, there are no easy answers to that basic question every claims handler needs to ask: Is it covered? Nonetheless, it is a basic question that is sometimes fraught with trepidation.  As you all know, there is no one source of coverage law interpreting your standard CGL form. 50 states means 50 different view points.

How is one supposed to cope?

While hiring counsel may be the quick and dirty answer, it’s not always the best solution. Regardless, as the well informed claims professional you are (as all of our readers are),  you need to have a good understanding to know what the best solution is to address the problem. Not addressing a coverage issue can result in paying for claims that are not covered. Addressing a coverage issue improperly could result in a bad faith action and damage to your company’s reputation. Either way – knowledge is king.

So How Does One Keep Up?

Grab a copy of General Liability Insurance Coverage by Randy Maniloff and Jeffrey Stempel.  This is truly a book that should be at every claim handler’s side. Unlike other treatises on insurance coverage, this is a relatively manageable paper back in under 500 pages. There is no attempt to get at every issue in the ever changing world of coverage. As the authors state in the preface that “despite the relative uniformity of policies, states can differ widely in their interpretation and application of insurance policies.” Nonetheless, the authors provide a great overview needed to understand the issue at hand so one can make a decision to pursue a matter further.

Each chapter begins with an overviews of the subject followed by a state by state survey.  Even the physical book design is pleasing with flaps built into the cover and end page to use as a bookmark. Covering the key elements and issues in a CGL policy, the book is broken into the following 21 chapters:

  1. Commercial General Liability Insurance – an Overview
  2. Choice of Law for Coverage Disputes
  3. Late Notice Defense Under “Occurrence” Policies: Is Prejudice to the Insurer Required?
  4. Duty to Defend Standard: “Four Corners” or Extrinsic Evidence
  5. Insured’s Right to Independent Counsel
  6. Insurer’s Right to Reimbursement of Defense Costs
  7. Prevailing Insured’s Right to Recover Attorney’s Fees in Coverage Litigation
  8. Number of Occurrences
  9. Coverage for Innocent Co-Insured: “Any” Insured vs. “The” Insured and the Severability of Interests Clause
  10. Is Emotional Injury “Bodily Injury”
  11. Is Faulty Workmanship an “Occurrence”
  12. Permissible Scope of Indemnification in Construction Contracts
  13. Qualified Pollution Exclusion
  14. “Absolute” Pollution Exclusion
  15. Trigger of Coverage for Latent Injury and Damage Claims
  16. Trigger of Coverage for Construction Defects and Non-Latent Injury and Damage Claims
  17. Allocation of Latent Injury Damage Claims
  18. Invasion of Privacy: Guidance from “Junk Fax” Claims
  19. Insurability of Punitive Damages
  20. First- and Third- Party Bad Faith Standards
  21. The “Reasonable Expectations” Approach to Insurance Policy Interpretation

The book is organized well, making it easy to find answers to issues in the state you are concerned about. Want to know how to address the absolute pollution exclusion in Alabama? Go to page 29 where you will learn that the Supreme Court of Alabama did not preclude coverage because a “reasonably prudent insured might have concluded  in 1991 that the presences of lead paint flakes…would not qualify as a discharge, dispersal, release or escape of a pollutant.”

Very simply laid out, and written with a claims person in mind, the book explains complex coverage issues plainly. For example, they begin Chapter 4 on the Duty to Defend Standard by saying “If coverage issues were stocks, the duty to defend would be Blue Chip. Just as investors purchase such stocks in hopes of steady and consistent returns, the rules concerning an insurer’s duty to defend have long been unwavering.”  Really a great way to advise of the foundational importance of this issue.

So Don’t Be Left In A Coverage Black Hole And Pick Up A Copy.

4 Key Areas For Claims Handlers To Review When Dealing With Follow Form Policies

Posted on by
1

Follow-Form Coverage Does Not Mean All Your Ducks Are Going To Be In A Row

A follow form excess or umbrella policies is a type of policy where the terms and conditions of an underlying layer of coverage are adopted and incorporated into the “following” layer. While these policies may still have independent provisions and exclusions, they will nonetheless relate back to the underlying, “followed” policy for most of the terms.  In many situations this way of handling excess coverage prevents inconsistencies and ensures there are no gaps in coverage. However, in complex matters involving multiple layers of coverage, or when the language conflicts with the underlying layer, many problems can occur. In claims involving these types of policies, claims handlers must fully analyze all the terms and conditions of all the policy provisions to truly understand the coverage applicable.

There are many forms of language such provisions can take, but below is a good general version of a follow form provision:

“The terms and conditions of insurance of this policy are the same as those of the “underlying insurance” in effect at the inception of this policy except as specifically set forth in this policy and any endorsements attached hereto.”

Follow form policies have been effectively in use for a while. Regardless, as insurance layers have become more complex, so have the issues surrounding these types of coverage. Problems can occur for multiple reasons and the end result could be an expansion or contraction of coverage. Recently, Dennis Wall, Esq., pointed out, in his Insurance Claims and Bad Faith Law Blog, a court decision that addressed a problem with a follow form policy:

“Following form” is a term of art in the insurance industry, and it is not to be used blindly, according to a recent judicial decision.  An Excess Liability Insurance Policy containing that phrase to describe its coverage, may find that its coverage will be held by a Court to provide coverage which the carrier may not have contemplated.  This happened in a recent case in which there were two (2) underlying policies, one which did not exclude coverage for punitive damages and a second underlying policy which did expressly exclude coverage for punitive damages…. Having failed to either expressly provide for which of any underlying policies it would be “following form,” or to expressly exclude coverage for punitive damages, the Federal Court held in that case that the subject Excess Liability Insurance Policy provided coverage within the limits of Tennessee Law for punitive damages assessed against its Insured.

In the case above, coverage was expanded beyond what was originally intended.  Rich Scislowski, an attorney and Senior Research Analyst for IRMI.com, gave the following list of the Top 10 Problems With Follow-Form Coverage, to point out the complexity of these types of policies:

  1. Umbrella Exception Conflicts with Umbrella Exclusion
  2. Misidentifying Underlying Policy
  3. Confusion over Applicable Underlying Policy(ies)
  4. Follow-Form Endorsement Converts an Umbrella to a Straight Excess Policy
  5. Contract Requires a “Broad as Primary” Endorsement but a Follow-Form Endorsement Is Procured
  6. Excess Policy Follows Form to an Underlying Policy That Excludes the Loss
  7. Higher Level Excess Policies Follow Different Underlying Policies
  8. Excess Policy Follows any Underlying Policy with “Additional Terms” Not in the Primary Policy
  9. Follow-Form Provision Makes Higher Level Excess Policy Follow the “Most Restrictive” Underlying Policy
  10. Follow-Form Provision Excepts “Anything Inconsistent” with the Umbrella or Higher Level Excess Policy

The overriding theme in the above list is that coverage issues are going to be present when underlying layers are not properly defined. While many of these concerns should have been addressed in the underwriting process, the reality is any problem with follow form policies will be the claims handler’s responsibility once the claim is filed.

So what are the key issues that should be looked at by claims professionals when reviewing a follow form policy?

At the minimum claim handlers should do the following:

  1. Understand which underlying policy is being followed: This sounds easy, but can be very complicated when there are multiple policies and multiple layers. Check with underwriting to ensure that the policies intended to be followed are correctly identified. Are the correct layers identified by policy number in a schedule of underlying insurance? If multiple layers are identified, does the policy correctly specify which layer will be followed?
  2. Secure copies of all underlying policies: As any experienced claims professional knows, getting copies of underlying policies can be a challenge. Stating the obvious – clearly having copies of the underlying terms is essential in conducting a coverage analysis. It can never be assumed that the underlying provisions are “standard” and that no conflicts exist. Different layers may have different follow form language that may expand or contract coverage offered in your policy. In multiple layer situations it is very possible that the coverage you thought you were sitting over may not even exist for a particular claim.
  3. Analyze how all layers connect: Diagramming multiple layers, as well as how their follow-form language applies, is extremely valuable when dealing with high exposure multiple tier coverages. While you maybe the 4th layer following the primary lead umbrella, the 3rd layer may follow the primary layer and have some conflict negating coverage. After the analysis, you may learn that your coverage attaches lower in the tower than was intended.
  4. When in doubt – get help: The key for a good claims person is to know how to SPOT the issue and seek assistance where needed. These provisions and policies can get confusing, and how the language is written as well as the intent of the parties, will determine how much coverage is truly exposed. When in doubt, engage coverage counsel for a written opinion on the applicability of all layers of coverage. Its better to be safe early on then to find out later that your exposure is much greater than expected.

Follow-form provisions can work to both limit or expand coverage in different situations.  Understanding exactly what is covered, and how much is exposed, is imperative for a proper coverage determination. Once a claim comes in it is the claims handlers’ responsibility to effectively analyze all the possibilities to know how much is potentially exposed.

When problems do occur, use the information to help improve future policies. Discuss the issues and possible solutions with underwriting and become a more effective operation and help limit future issues.

Saying “I’m Sorry” Can Reduce Exposure to New Claims

Posted on by
3

It may seem counter intuitive, but with the right technique a heartfelt apology can help lower claims costs and exposures

There is a wave of civility sweeping through the world of risk management as a way to lower exposure and reduce costs: Apologize. Maybe mom was right when she stood there and said “now say you’re sorry.” In fact, there are some very impressive statistics in the area of medical malpractice around the simple use of an apology.

For example, as Peter Bregman wrote in his article in the Harvard Business Review, I want you to apologize, “When the University of Michigan Health System experimented with full disclosure, existing claims and lawsuits dropped from 262 in 2001 to 83 in 2007.” Now those are numbers to pay attention to.

The Movement to Apologize

Increasingly there is a view that making an apology can significantly lower the risk of lawsuits. Admitting fault and making an effort to fairly resolve the damages can greatly reduce indemnity payments and significantly lower claim expenses. In Canada they actually legislated it under the Apology Act of 2009 which allows communication of sorrow or regret without worrying that the comments can later be used adversely in a civil court. See Dan Pinnigton’s The Apology Act 2009: Sorry is no longer the hardest word to say.

Using techniques to foster an appropriate apology have been shown to lower costs. Hospital customer service groups are teaming with Risk Management to help reduce lawsuits as recently discussed in the Everest Best Practice’s Blog post – Healthcare Risk Management and Patient Relations Collaborate to Reduce Litigation. In fact, an entire organization, Sorry Works, was formed in 2005 to help businesses shift the view that making an apology after a bad event will increase lawsuits. After an experience of medical malpractice, Doug Wojcieszak, founded the company to counsel companies on how to effectively apologize.

3 Steps to Disclosure

Sorry Works advocates a program that is predicated on a three-step disclosure process:

Step 1 – Initial Disclosure – is all about empathy and re-establishing trust and communication with customer in the immediate aftermath of an adverse event. Executives say “sorry” but fault is NOT prematurely admitted or assigned. Also, do NOT become defensive. Executives take care of the immediate needs of the customer (phone calls, transportation, food, etc) and promise a swift and thorough investigation. The goal is to make sure the customer never feels abandoned. In the spirit of good customer service, pull the customer closer to your company or organization.

Step 2 – Investigation – is about learning the truth. Was a mistake/error made, or not? They recommend involving outside experts and moving swiftly so the customer doesn’t suspect a cover-up. Stay in close contact with the customer throughout the process.

Step 3 – Resolution – is about sharing the results of the investigation with the customer, and their legal counsel. If there was a mistake, apologize, admit fault, explain what happened and how it will be prevented in the future, and discuss fair, upfront compensation for the injury or death. If there was no mistake, continue to empathize (“we are sorry this happened”), share the results of investigation (hand over charts and records to customer and their legal counsel), and prove your innocence. However, no settlement will be offered and any lawsuit will be contested.

The Art of Saying Sorry While Protecting Rights

Kevin Quinley suggests proper ways to apologize in Can Saying “I’m Sorry” Manage Risks?

  • Start with, “I’m very sorry that this has happened” Note: this does not acknowledge any negligence or liability.
  • Be concise. Do not go into detail or sound like you are making excuses.
  • Be prompt. Don’t delay. The quicker you can apologize and express regret for a situation, the better chance you have of nipping a potential claim in the bud.
  • Ask, “What can we do to make it right?” Use that as a starting point for negotiation.
  • If the other party is threatening to initiate litigation or you are concerned that litigation may be in the offing, do not send a written apology.
  • Even if the problem is not your fault, apologize for the situation and try to make amends. The determination to “be right” can get the best of many people and trigger costly claims. Even meritless claims may consume thousands of dollars in legal fees and hundreds of man-hours to defend.

    • Coverage Issues

    It is important to note that some cooperation clauses could negate coverage if an insured admits liability. Many policies contain the following cooperation language which might be triggered in the event an apology is looked at as and admission of liability:

    The Insured, except at his/her own cost and for his/her own account, shall not, without written consent of the Company, make any payment, admit any liability, settle any claim, assume any obligation or incur any expense. The Company shall have the right, but not duty, to appeal any judgment.

    Understanding language that might give rise to a coverage concern should be addressed prior to instituting any apology program. Effective collaboration between insured and insurer can help avoid policy issues before they occur.  (See the discussion in Does Medical Error Disclosure Violate the Medical Malpractice Insurance Cooperation Clause?).

    Some Additional Thoughts

    Even if an apology did not take place immediately after the incident, if the matter proceeds to litigation a mediation can also be an effective time to apologize. The general principal that things said at a mediation cannot be used at trial protects all from any statements which might be misconstrued or used against an insured at trial. When attending a mediation, make sure to choose the corporate representative who will apologize wisely. A flip apology from a person who is far removed from the event may do more harm than good.

    As Kevin Quinley stated so well:

    In the 1960s tearjerker movie and novel, “Love Story,” the tag-line was, “Love means never having to say you’re sorry.”

    That may be true in love but it may not be true in risk management. In certain circumstances and situations, apologies may be legitimate risk management tools not only to retain valued customers, but to forestall expensive and time-sucking litigation.

    Do you think that using an apology can reduce costs in every case? When might it be a problem?