If your company has an emergency response plan—and it likely does—filing an insurance claim needs to be included in that plan. But what if your insurer stretches out the consideration process by making continuous, costly information requests without making a coverage determination? Or decides to deny coverage under one clause of the policy, but accept coverage under another? Or outright denies coverage? Policyholders should be prepared to comply with policy obligations (which may vary depending on the controlling state law), such as the sharing of relevant information and documentation or participating in arbitration or a mediation prior to suing the insurer, but also understand the responsibilities insurers have to policyholders when a claim is tendered.
Insurers’ typical duties include:
- acknowledgment of the claim;
- duty to investigate;
- right and duty to defend;
- right to defense counsel; and
- right to settle.
Upon assessment of a coverage denial, policyholders should review the entire policy, including any endorsements and schedules, carefully to determine their options. Many policies contain endorsements or amendments that may change the terms of the original policy and scope of existing coverage that the insurer may have overlooked.
Other best practices to include as part of the “plan,” include having a system for documenting relevant information and incurred costs, especially those incurred in the immediate aftermath, before the insurer can assess the loss, and having a pre-determined list of emergency vendors who can assist in restoring business operations as quickly as possible. A written record of communications with the insurer also is important for the insurance claim, but also if it is necessary to commence a lawsuit for coverage. For example, the insurer may assert a late notice defense which precludes coverage. In this case, documentation of the policyholder’s timely report of the claim may be necessary.
Policyholders also should understand which stakeholders, internal and external, should be included in the claim process. This may include named insured entities, where the claim is being made by an additional insured or subsidiary, brokers and coverage counsel who have specialized knowledge about insurance claims and disputes, and can help navigate the claim process. Among other things, experienced coverage counsel can help to ensure compliance with policy conditions and other requirements, pursue prompt payment and other policy benefits that may be due, and protect your rights in the event the insurer refuses to fully accept the claimed loss.