Basic of Insurance

5/24/2018 Basic of Insurance

1/44 Husch BlackwellLLP

Insurance Basics

Bruce Moothart

[email protected]

David Schatz

[email protected]

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Introduction and Summary

Types of insurance and application

Common issues with insurance

Roles of the insurance broker and lawyer

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Types of Insurance

Is there insurance for everything?

Virtually all conduct can be covered, but therecan be gaps

Example: Co-employees: Standard insurance

forms generally includes employees while

operating within the course and scope of theiremployment, unless the injured individual is also

an employee injured during the course and scope

of employment

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Types of Insurance

The Big Four

Commercial general liability (CGL)

Workers Compensation (WC)/EmployersLiability (EL)

Property

Business auto

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Types of Insurance

Commercial general liability (CGL)

Provides coverage for bodily injury or propertydamage caused by an accident

Also provides coverage for personal injury for

advertising injury

Does not cover contractual claims

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Types of Insurance

Workers Compensation/Employers

Liability (WL/EL)

Required if five or more employees/one or

more employees if in construction industry

Possible to self insure

Penalties if you do not carry it

EL is stop gap insurance

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Types of Insurance

Property

Real property Personal property

Business interruption

You may need a specialty policy for certain

types of property

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Types of Insurance

Business Auto Liability (BAL)

Provides coverage for categories of vehiclesor scheduled vehicles

Works in conjunction with your CGL

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Types of Insurance

Other types of liability insurance

Directors and Officers Insurance (D&O ) Three types of potential coverage Includes intentional acts

Available for the entity

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Types of Insurance


Data Protection Liability Insurance (Cyber

Insurance)

Fiduciary Liability (FL)

Errors and Omissions Insurance (E&O)

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Types of Insurance


Internet Liability Insurance (ILI)

Employer Practices Liability Insurance (EPL)

Builders Risk

Environmental and Pollution Liability Insurance

Surety Bonds (not insurance for the purchaser)

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Types of Insurance

Transactional insurance

Representations and Warranties (R&W)

Protects parties from inaccuracies in

representations and warranties

Litigation Buyout Insurance

Insurer assumes risk of a lawsuit or group ofclaims

Involves known loss

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Types of Insurance

Transactional insurance

Life insurance (key person insurance)

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Types of Insurance

Excess and Umbrella policies

Excess Policies

Provide additional limits of coverage By reference contain the same terms of coverage

as the underlying policy and follow form. SeeAmerican Home Ass. Co. v. Republic Ins. Co., 984F.2d 76 (2nd Cir. 1993).

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Types of Insurance


Umbrella policies

Are broader than the underlying policies and may

provide coverage not present in the underlying

policy. See Commercial Union Ins. V. WalbrookIns. Co., 7 F.3d 1047 (1stCir. 1993)

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Types of Insurance


Do not drop-down for insolvencies

The determination is made by a review of the

policy language. The majority of courts have held

that excess carriers do not have to drop down in

the event the underlying carrier becomes insolvent.

Fred Weber, Inc. v. Granite State Ins. Co., 829

S.W.2d 589 (Mo. Ct. App. 1992)

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Types of Insurance

Self Insured Retention (SIR) versusDeductible

SIR: A dollar amount specified in the insurance policy

that must be paid before the insurance policy willrespond to a loss

Usually employed by insureds who have frequentbut small losses

TPA may be required

Deductible: A portion of a covered loss that is notpaid by the insurer

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Types of Insurance

Self Insured Retention versus Deductible

Difference between an SIR and deductible is that a deductible isa portion of a covered loss for which the insured must reimbursethe insurer, whereas an SIR is a portion of a risk that that the

insured retains for itself Choice of defense counsel: Typically an insured has the

obligation to defend the suit with an SIR

Insolvency/Dropping Down: The insureds payment of adeductible is a condition subsequent. Therefore, where theinsured is in bankruptcy, the insurer must pay the entire amount,

and then seek reimbursement from the insured. Payment of anSIR, on the other hand, is a condition precedent. The insurer isnot required to drop down and pay the SIR

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Types of Insurance

Claims made versus Occurrence basedpolicies

CGL policies are generally occurrence-basedpolicies that cover injuries that take place duringthe policy period

Claims made policies cover liability for bodilyinjury or property damage for claims asserted

during the policy period (e.g. D&O Policies)

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Common Issues

Why do so many issues arise with

insurance coverage?

Contracts are not negotiated

Form language that must address an

unlimited number of circumstances

State law varies on contractual outcome andextra-contractual claims

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Common Issues

Notice

Specific notice provisions vary from policy to policy, but the basicpurpose is to allow enable insurers to adequately investigate and

respond to claims Majority rule is late notice does not relieve the insurer of its

obligations unless the insurer is prejudiced as a result of thedelay (Tuterris, Inc. v. Hartford Steam Boiler Inspection & Ins.Co., 984 S.W.2d 266, 269 (Mo. Ct. App. 1995))

Practical Impact: Insured may not be able to obtainreimbursement for defense costs expended through the timethe insurer received notice of the claim

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Common Issues

Notice

It is generally held that independent insurancebrokers are considered agents of the insureds whosecoverages they place (United Fire & Ca. Ins. Co. v.Garvey, 419 F.3d 743, (8th Cir. (Mo.) 2005))

Brokers may be held liable when they fail to timelycommunicate notice of a claim to insurers (See

Stevenson Ins. Assocs., Inc. v. Cohen, 228 So.2d118, 210 (Fla. Dist. Ct. App. 1969))

Best practice is to obtain written copy of noticeprovided by broker to insurance carrier

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Common Issues

Obligation to defend versus indemnity

Duty to defend is broad: Insurers have a duty to defend claims

where the facts potentially state a claim within coverage of the

policy (Steve Spicer Motors, Inc. v. Federal Mutual Ins. Co., 758

S.W.2d 191, 193 (Mo.App. S.D. 1988))

Generally includes the duty to defend both covered and non-

covered claims, but states vary on the issue (See Carpenter,

Weir & Myers v. St. Paul Fire and Marine Ins. Co., 1998 WL

976309, *12 (D.Kan. October 30, 1998))

Insurer more likely to indemnify if defending

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Common Issues

Reimbursement of Defense Costs by Insurer fora Non-Covered Claim

Majority rule is that an insurer is entitled to recoup its defensefees if it reserved its right to do so and a subsequentdetermination is made that the insurer had no duty to defend

The minority rule (and more recent case law) suggests thatabsent a specific provision in the policy requiring reimbursement,the insurer is not entitled to recover it defense costs from theinsured (See Westchester Fire Ins. Co. v. Wallerich, 563 F.3d707, 718 (8th Cir. 2009)(applying Minnesota law))

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Common Issues

The Tri-partiterelationship In the typical

insurance defense

scenario, the insurerretains a lawyer torepresent an insured,which sets up a three-way relationship

between the insurer,insured, and thelawyer

Insured

Lawyer

Insurer

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Common Issues

The Tri-Partite relationship http://www.youtube.com/user/TheDHXTRA

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http://www.youtube.com/user/TheDHXTRAhttp://www.youtube.com/user/TheDHXTRA


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Common Issues

The Tri-partite relationship

Lawyers primary obligation of duty or loyalty is to the

insured, but owes some obligation to the insurer, andmay be sued by the insurer for malpractice. Nevada

Yellow Cab Corp. v. Eighth Judicial District Court ex

rel. County of Clark, 152 P.3d 737 (Nev. 2007).

In other states defense counsels only client is the

insured. In re A.J. Robins Co., Inc., 880 F.2d 709 (4th

Cir. 1989)

Affects reporting

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Common Issues

Duty of Insurer

The insurer must sacrifice its interests in favor

of the insured

The insurer must provide a timely and

complete response

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Common Issues

Duty of Insured

All policies contain cooperation clauses that

require the insured to assist in the defense of

the case

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Common Issues

Limitations on CGL coverage

Does not apply to your work or product

Not a guarantee of your work

You may need Products/Completed Operations

coverage

Only applies to accidents, not intentional conduct

Only applies to bodily injury, property damage or

personal injury

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Common Issues

Limitations on CGL coverage

Does not apply to employment claims

Does not cover recalls

Only covers named, other or additional

insureds

Does not apply to environmental claims

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Common Issues

Reservation of Rights Letter

A declaration by the insurer that it willdefend the action, but reserves theright to contest the available coveragefor all or part of the claim

Creates a conflict of interest Commonly issued

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Common Issues

Reservation of Rights Letter

Insurer may lose the ability to control the

defense (Ballmer v. Ballmer, 923 S.W.2d 365,

370 (Mo.App. W.D. 1996))

Treated the same as a refusal to defend (Auto

Owners Ins. Co. v. Ennulat, 231 S.W.3d 297,305 (Mo.App. E.D. 2007))

Frees insured to act in its own interest

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Common Issues

Additional Conflicts of Interest

Claims in excess of policy limits

Uncovered punitive damages

Facts discovered that bear on coverage

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Common Issues

Why insurers are concerned aboutconflicts

If the conduct is done in bad faith, it exposes theinsurer to damages beyond policy limits and punitivedamages

Cannot challenge judgment

Juries do not like insurance carriers

The adjuster may not make the best witness http://www.youtube.com/watch?v=rOuAU3nn-

UM

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Common Issues

Settlement without insureds consent

Most often a med mal issue: Rogers v.

Robson, Masters, Ryan, Brumund and Belom,

407 N.E.2d 47 (Ill. 1980)(physican feared loss

of reputation if malpractice claim against him

was settled) Most policies give the insurer the right to

settle

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Common Issues

Insurance requirements versus indemnity

obligations

Different obligations

Duty to indemnify can exist without available

insurance

Interplay between policy and agreement canaffect obligations and priority of coverage

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Common Issues

Additional insured status

Should review endorsements

Certificates of insurance do not create

coverage

Trend is that insurer will not agree to provide

notice of cancellation

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Common Issues

Other available insurance

Should not impact your insurers obligations to

you

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Roles of the Broker and Lawyer

Broker is generally agent of the insured

Best knowledge of available options

May act as an advocate for the insured

Lawyer can provide insight on scope of

coverage

No relationship with insurers

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Tips

Submit claims immediately and to all

potential insurers

Be proactive in providing support for your

claim

Be on the lookout for coverage issues and

conflicts of interest

Maintain copies of current and prior

policies

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Tips

Insist that the insurer pay undisputed

portions of a claim

Request endorsements in addition to

certificates of insurance

Pay attention to insurance requirements

and indemnity provisions

If you are bringing suit, consider what

claims may be covered

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Tips

Know your acronyms:

CGL, D&O, FL, EPL, E&O

EUO (Examination under oath)

DOL (Date of loss)

POL (Proof of loss)

SOL (What happens when your policy lapses

the day before a loss)

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Questions?

Documents

Basic of Insurance