Tips to improve your odds of securing insurance coverage

As the saying goes, “a dollar saved is a dollar earned.”  What more appropriate industry could this saying describe than insurance?  Every dollar not paid on an insurance claim can drop to the bottom line.  Policyholders must be proactive in seeking and securing their insurance coverage.  Never accept an initial denial and leave money on the table. 

Here are a few tips to improve your chances of getting that claim paid:

First, you must possess a deep understanding of your insurance program and coverage.  Without the right insurance, you cannot get the claim paid.  This may sound simple, but a surprising number of insureds do not understand — truly understand — their insurance.  It is not enough to tell your broker that you need insurance and then have some policies placed.  In insurance coverage disputes, the devil is almost always in the details.  A policyholder must review the policies and ask lots of questions about what may or may not be covered in different loss scenarios.  Do your best to know how a particular policy will respond to a particular type of loss.  Also, make sure you have the appropriate limits and sublimits for the risks being covered.  Having the right insurance in place is step one; having the right amount of coverage is step two.  Do not find yourself with the correct coverage but underinsured.

Next, when you have a loss, do not forget about your insurer.  Many policyholders get so wrapped up in the loss (or lawsuit) and its impact on operations that they forget to loop in the insurer.  Insurance policies contain terms and conditions that a policyholder must comply with in order to invoke the coverage, such as timely notice of the loss or claim to the carrier.  Failure to comply with the policy’s terms and conditions may lead to a denial of coverage.  When your company sustains a possibly covered loss, you should immediately involve your broker and/or coverage counsel for guidance in complying with your policy’s terms and conditions.  Some of these conditions can be time sensitive. 

Third, never accept an initial denial of coverage by your insurance carrier.  You paid a premium for the insurance, and now you will have to press to get it.  When you receive a denial letter, your broker should spring into action, immediately advocating for coverage.  If the broker cannot obtain coverage, persist.  If you have not already done so, take the issue to a coverage attorney and try again.  If your coverage attorney cannot get results informally, but likes your odds, keep calm and litigate the coverage claim.  In this economy, securing coverage from your carrier is all about leverage.

This next point follows a similar line to the third one, but with respect to those pesky reservation-of-rights letters.  Any company that has been sued and defended by its insurer has likely received such a letter.  These mind-numbing communications may quote, at length, numerous portions of the insurance policy, identifying what may or may not be covered.  Insurers now send out letters as a matter of routine in almost any third-party loss scenario, as well as first-party losses.  Do not simply put a reservation-of-rights letter in your file and forget it.  A reservation-of-rights letter is a red flag: Stop and consider coverage issues.  An informed policyholder should always carefully review such letters and, at a minimum, respond to them by informing the insurer that you do not accept its premise and that you reserve your own rights for coverage.  Coverage counsel can assist in preparing such a communication, which can be critical in a subsequent coverage dispute.  In some jurisdictions a reservation-of-rights letter can provide the insured a right to independent counsel.  Additionally, work with your broker and coverage counsel to develop a response and strategy to monitor coverage issues when there is a reservation of rights being asserted by your carrier.  Remember, when your insurer pays for your defense attorney, he or she is usually barred from getting involved in your coverage issues due to the “tripartite relationship doctrine.”

Insurance coverage disputes are like a chess match.  Policyholders must look ahead and consider their moves in order to develop the best opportunity to secure coverage for the loss or claim.  Working with your broker and coverage counsel early in the process can dramatically increase the odds of obtaining coverage from your insurer.

Collin Hite is the practice leader of the Insurance Recovery team in Hirschler Fleischer’s Richmond office.  He can be contacted at (804) 771-9595 or [email protected].