Over the years, many of my
clients have been manufacturers and distributors, many of them international
companies. One of the most fundamental principles of risk management for these
companies is to make sure they have a well structured insurance program. Having
adequate insurance literally makes doing business in the U.S. -- notorious for
its litigious nature -- possible.
International companies considering
doing business in the U.S. are often told they need an accountant, and turn to
an accountant to set up their business. In my view, using only an accountant is
a fundamental mistake. In reality, a company doing business in the U.S. needs
to engage three professionals: a business attorney, an insurance broker or
agent, and an accountant. Ideally, these professionals should work together to
limit the company's business risk. The same is true for new domestic companies.
This blog, however, is about insurance,
so let's focus on that topic. Insurance companies make the promise of protection.
Insurance companies often design and promote new products to deal with unique
risks. Just this morning, I found announcements from insurers or brokers
pollution coverage and coverage for Foreign Corrupt Practices
Act Liability. I also found an interesting piece about why privately held
companies are considering (and need to consider) directors and officers
liability coverage. Note: I
provide links to these announcements only for informational purposes. I have
not analyzed any of the products mentioned and do not endorse them. The reader
must investigate any insurance product or service at its own risk.
Although it is a good thing that
insurers and brokers are developing new products that can assist businesses in
controlling risks, I must sound two words of caution. First, the reason that
companies are coming out with these focused products is because they have tried
to limit the coverage available under more traditional coverage, such as
commercial general liability ("CGL") policies. I often see CGL
policies that are so limited by exclusions and endorsements that calling them
"general" liability policies borders on absurdity.
Second, even when these newly designed
policies clearly provide coverage, that does not mean the claims department
will acknowledge coverage. Here's a little secret about insurance companies:
There is often little coordination between the underwriting department and the
claims department. When underwriters design coverages for non-traditional risks
and to bring in new premium dollars, it seems they do not tell the claims
department. When the claims come in, as they inevitably will, the claims
department may ignore the broader grant of coverage and deny the claim. I have
seen this happen. If this happens, call an insurance coverage lawyer.
So there it is: Love and hate. I love
insurance companies because they allow businesses to limit and control their
risks in a litigious environment. I hate them for trying to endorse away their
general coverage and when the claims department does not live up to the
promises of the underwriters.
articles on policyholder law at the Policyholder Blog, by John L. Watkins
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