Think Twice Before “Going Nuclear” Against Your Insurer

In late April, Business Insurance ran a series of articles in one issue for risk managers about litigating coverage disputes against insurers. The prime target market of Business Insurance is risk managers, so these articles plated to its audience well, one imagines.

As a claims guy, though, my reaction was that the article’s and quoted experts’ focus on pitched warfare against insurers was imbalanced. Many of these articles quoted lawyers who specialize in coverage litigation against insurers.

Of course, when your main tool is a hammer, everything starts to look like a nail. If there is no litigation against insurers, the quoted attorneys would have to find other areas of the law to practice in or other targets to sue.

While litigation has its place in the risk manager’s toolbox, the articles gave scant mention to more informal ways to try to resolve such disputes, short of litigation or even ADR. Insureds should exhaust informal avenues before “going nuclear.” There are – or should be – other resolution tools in the risk manager’s toolbox. Use these first before escalating into pitched warfare.

What tools and options are available? Such means include

* Scheduling an in-person “meet and confer” session with the adjuster.

* Going up the claim department org chart to appeal a groundless coverage stance.

* Enlisting the broker’s help and leverage to bring an intransigent insurer to heel.

These are curative approaches, though. We use them after a coverage dispute arises. Maybe the carrier cites a policy Exclusion. Or it claims that the insured has breached a policy Condition. Or it asserts that the date of loss fell outside its policy.

To render curative approaches moot, a preventive approach is better. More importantly, many claim clashes result from inadequate buyer due diligence at the insurance placement and renewal stage. In my experience, too often buyers and brokers fail to address claim issues at the insurance placement and renewal stage. This may be due to

* Inordinate focus on price of quote as the key driver of buyer decision-making

* Wishful thinking – “We won’t have claims ..”

* Not wanting to “spoil the mood” by talking about claims – “The carrier may get nervous and gun-shy about the risk if we open the discussion to claims …”

* Eagerness to close the deal without putting a “fly in the ointment” by discussing losses

* Hoping that “everything can be worked out later”

Nailing down the meaning and application of key policy terms and provisions in advance is key. Examining claim processes and discussing “what if” loss scenarios are neglected in the rush and zeal to do the deal. Coverage buying decisions driven by price and “the cheapest quote” crowd out serious consideration of claim issues. In claim service and coverage determinations, you get what you pay for. Skimping on claim issues at the placement/renewal stage is a recipe for disaster. Proactive approaches can save risk managers heartache, heartburn and avert some (albeit not all) coverage litigation.

Litigating against the insurer is not a course to choose lightly. Litigants on both sides may ponder Voltaire’s quote, “I was never ruined but twice: once when I lost a lawsuit and once when I won one.”