Changes in the Economic and Regulatory Environments Mean Changing Risks: Is Your Insurance Program Keeping Pace?

Commercial insurance needs—just like the needs of your business—change over time. They can be affected by a number of factors, including shifts in the economy, additions or divestitures of business units, changes in organizational structure, and the evolving litigation and regulatory climates. Too often, a company's insurance programs and its strategies for pursuing claims lag behind ongoing developments. There often is a temptation to treat insurance as a commodity for which price is the chief consideration, particularly during a period of generalized belt-tightening. Giving in to this temptation can be costly, particularly if it results in the denial of a significant claim because you failed to comply with a policy condition, account for the legal consequences of a new exclusion or challenge a questionable coverage denial.

An Ounce of Prevention

Insurance policies are contracts and, like any other contract, their terms and conditions have legal significance that no business should take lightly. The onset of a new year or the months leading up to an insurance renewal are opportune times to assess whether your current insurance policies and risk management practices are sufficient to meet your ongoing needs.

Would a legal audit provide reassurance that the insurance coverage for which your business paid substantial premiums will be available when you need it? For most businesses, the answer should be a resounding "yes." Consider the following questions:

• Most businesses buy the same insurance every year. When, if ever, did you last conduct an audit to determine whether your insurance coverage continues to fit your company's risk profile or the manner in which it conducts business?
   
• Do you know what common risks of liability to third parties or to first-party loss are covered by your insurance program and which are not? Do you know if coverage is available to address currently uncovered risks and, if so, under what terms? 
   
• What potential claims, liabilities and losses do you fear the most? Are you certain that your insurance program covers against them?
   
• Insurance coverage can be endangered by failing to comply with common, but easily overlooked policy conditions. Do you know what your insurance policies require you to do in order to preserve coverage if there is a claim or a loss, or if you become aware of circumstances that could result in a claim or a loss?
   
• Do you know whether endorsements naming your business as an additional insured or a loss payee contain terms that provide a level of coverage consistent with your expectations?
   
• If you anticipate a corporate acquisition/divestiture or a change in the structure of your business, what will be done to preserve the continuity of coverage or to account for the rights of the parties to the transaction to make claims?
   
• Are you prepared for the possibility that an insurer will deny a significant claim? What, if anything, will you do if one of your insurers denies a claim that you believe should be covered?

In the end, companies purchase commercial insurance to create a safe harbor for catastrophic losses or to address routinely recurring losses. If your policies do not provide the coverage you expect, however, the consequences can be devastating. An insurance audit can help you align your coverage with the needs and expectations of your business—particularly in a difficult economic climate, where insurers are often more aggressive in fighting coverage. Working with you and your insurance broker, counsel who understands the ways in which insurance companies interpret their policies and approach claims can bring that knowledge to bear in helping you manage your risks, present claims and dispute an insurer's coverage determination, when necessary.