Attorneys get their share of frantic phone calls. A landlord client called the other Friday. She had just received a lengthy denial letter from her insurance company. It seems
the landlord had not obtained insurance for her drugstore tenant. Both the landlord and tenant were being sued by someone who had slipped and fallen in the parking lot when the
store was closed. The plaintiff may have been drunk when he fell, and the case was finally set to go to trial. The insurance company was defending the landlord in the plaintiff’s lawsuit, but the lease required the landlord to obtain insurance for the tenant. The tenant was supposed to clear the area of ice and snow, but asserted a claim against the landlord over the landlord’s failure to procure insurance. Failure to obtain insurance is why the last-minute denial letter landed on my desk. In the end, the trial was postponed and the matter settled. The landlord likely will only have to pay a modest sum, but her insurance rates may rise. The moral of this tale: the time to think about insurance is before there is a claim. In the case of the unfortunate tenant, there were several approaches that could have prevented this issue from arising, but those steps needed to be put in place before the loss occurred. Trying to fix a contract-based problem after a loss takes place can be very difficult.
Do You Have The Right Insurance?
Most commercial contracts, including leases, have provisions that deal with insurance. The landlord in the above case appears to simply have made a mistake. However, having the wrong insurance, or insurance that does not take into account the risks to be insured against or that does not reflect changing business realities, can be just as bad as—or worse than—no insurance at all. No company needs additional litigation over insurance coverage when a lawsuit has been brought against it for the loss itself.
How To Protect Yourself
Policyholders can do a number of simple things to protect themselves. It is very important to work closely with a broker whom you trust and who knows your specific business and is familiar with the general type of your business. Brokers have dual loyalties, however, because they earn a living from the commissions they get from insurance companies. Policyholders need to be very clear in communicating with the brokers they use. Special coverage requests or special risks identified to be covered should be communicated to the broker in writing. If the coverage obtained by the broker is deficient and a claim is denied, whether a subsequent malpractice claim against the broker is successful may depend on the documentation that exists and the evidence that the broker knew the policyholder was relying on the broker.
A good broker works with the policyholder to tailor the insurance coverage to fit the policyholder’s needs. Disclosure of potential risks and the nature of business activities
will assist in conducting the insurance underwriting process. Proper disclosure can also prevent surprises, such as allegations of misrepresentation in the insurance application, when the time comes to make a claim. Along these lines, in addition to a complete application, businesses should always check the insurance certificates provided by policyholders working for them. A subcontractor may be able to produce an insurance certificate, but is it up-to-date and for the right insurance? It is always a very good idea to ask for a copy of the insurance policy. It is common for the insurance certificate to contain a legend in the upper right-hand corner warning that the certificate is for information only, that it confers no rights, and that it is not an insurance policy. In the rush to get a deal done or finalize a contract, the insurance policy may not even be issued by the closing date. Follow-up can be crucial. Insurance binders, certificates, or promised coverage may not be consistent with the final policy contract document. Simply
checking the summary “declarations” page of the insurance policy when issued can avoid innumerable problems down the line. Similarly, it is often tempting to just rely on a renewal of the old insurance policy when the issue comes up a year later. This could be a problem, however, if circumstances have changed.
Using Other People’s Insurance
Other people’s insurance (OPI) can be a very effective way to manage risk. Contracts can require those with whom companies do business to obtain insurance on their behalf or list them as an “additional insured,” etc., on another policyholder’s insurance policy. Again, it is important to review the actual policy and not just the insurance certificate. Contractual indemnification provisions can also be effective in shifting the burden from a policyholder in the event of a loss, and provide a useful, belt-and-suspenders approach to improving the policyholder’s chances of actually being defended and indemnified. Many companies have written policies requiring those with whom they do business to include them in their insurance program. Such written policies can be attached to contractual documents and put business associates on notice of their obligations.
These simple tips for attending to insurance matters can help to ensure that insurance is available when needed. Simply having coverage may not always off-set a loss, but a business that protects itself before a loss happens is a smart business.