In 2022, the insurance industry has become emboldened to issue abusive denials of insurance coverage for claims and lawsuits, threaten to terminate insurance policies, and sell insurance policies with hidden trapdoors buried in the endorsements. This could create a potentially devastating impact on a company’s bottom line. At Barnes & Thornburg, with many decades of insurance recovery and bad faith lawsuits for corporate policyholders under our belt, we never represent insurance companies. Our loyalties extend only to our insured customers. Thanks to this singular focus, we’ve seen a thing or two — and not always good things.
As we head headlong into the second quarter, legal departments, risk managers and finance executives should consider having their insurance policies thoroughly reviewed and analyzed. We’ve seen more policies issued in the past year with exclusions that would make coverage illusory — or not worth the paper they’re written on, depending on how insurance companies interpret them. Unfortunately, too many companies – having paid their premiums on time for years – are surprised when their claims are denied simply because their insurance companies consider that their policies do not provide the coverage they thought they were buying.
Our track record reflects our success in resolving insurance coverage disputes in all areas of policy enforcement, including D&O, cybersecurity, long tail, manufacturing, climate change, construction, media and more. Unfortunately, when a claims adjuster unreasonably denies cover for a claim, it is not uncommon for the insurer’s underwriters to offer the policyholder a better policy for the following year that covers the object of the claim refused, subject to an additional premium. There are better options.
Assessing a denial of coverage through a notice of coverage
In the event of a costly or complicated claim, standard operating procedure for an insurance company is to hire an outside insurer-friendly attorney to write a notice of coverage as part of the claims process. This notice assesses the claim and provides a recommendation as to whether it is covered. These insurance company lawyers know who pays the bills, which can lead to skewed coverage assessments calculated to support belligerent positions they know their clients want to take.
A best practice is for an insured to hire their own cover lawyer to provide the same type of analysis. Having an assessment of subsidies, endorsements, exclusions and coverage limitations on hand at the start of a claim allows companies to quickly make cost-benefit decisions and be better prepared to plan a path to resolve the dispute with the insurance company.
This best practice for insurance coverage disputes is an investment that avoids surprises down the line. A clarifying note outlining the issues and providing the pros and cons of what the case might look like if it were in litigation helps assess whether to “hold it or bend it.”