Some quick checks that may help improve your insurance coversGo Back
Here are some easy questions to ask about your insurance covers. The answers to them may give you the opportunity to ask for better cover at no additional cost. This is because all you will be asking for is that the policy language clearly reflects what, in all fairness, ought to be the intent of the cover. There should be no additional charge for a policy wording that is fit for purpose.
Is your policy a standard form wording supplemented by a number of endorsements?
If so, then there is a risk that words and terms used in the endorsements may not match up properly with those parts of the standard form wording that continue to apply. This creates the potential for ambiguity and contradiction in the policy terms, possibly leading to uncertainty as to the steps you need to take to meet policy terms and scope for arguments over policy interpretation in the event of a claim. Rather than offloading risk, the policy wording itself may become a source of litigation risk. That risk cuts both ways and so insurers and policyholders ought to be keen to work together to reduce or eliminate that risk.
Is the policy in a form that has been used over a number of years?
Endorsements or extensions may have been added in order to deal with “hot topics” in the insurance market at a particular time or to address specific issues that have arisen in relation to the insured. Cluttering the wording with outdated language just leads to the risk that the policy won’t perform as expected. Endorsements in later years may also use more “up to date” forms of terminology deployed in earlier endorsements, potentially leading to problems of interpretation. This is another respect in which reducing the risk of surprising interpretations of the wording is in the interests of you and your insurers and so co-operation to reduce that risk ought to be possible.
Are all of your insurers’ obligations actually enforceable?
Just because you have a policy does not mean that every term of it is necessarily legally enforceable. Sometimes policies will leave important matters – such as how to make an apportionment between those parts of a loss which are covered and those which are not – solely at the discretion of insurers. If they exercise the discretion in a way which costs you money then you will have no recourse. You have paid premium in return for insurers assuming certain obligations: there ought to be no penalty for ensuring that those obligations are legally binding.
Are the exclusions from cover wider than they look?
You may have a liability policy with an exclusion for claims alleging fraud. That’s fine and to be expected. But how does the specific language of the exclusion work? If, for instance, a claim includes an allegation of fraud alongside allegations which would otherwise be covered by the policy without question, is the whole claim excluded, even the non-fraud elements, or does the exclusion only apply to the fraud allegations? The latter should be the intent of the policy and insurers ought not to quibble about making that intent clear.
Do “extensions” to cover add value or take away coverage?
Terms identified as “extensions to cover” might do no more than provide cover which should be within the main body of the cover anyway. Dealing with such cover by way of extension creates the opportunity for the imposition of sub-limits to reduce the amount you could otherwise claim under the policy. For instance, certain legal costs may be covered by a sub-limited extension where those costs ought to be part of the main policy costs cover to which no sub-limit will usually apply. It is necessary to check that “extensions” really do improve your cover. Sometimes it makes sense “to look a gift horse in the mouth”. If insurers have previously offered the cover without a sub-limit, there is no claims history reason to impose a sub-limit, and they are presenting the change as though they are doing you a favour, then they should not object to the language being changed.
Are you clear about the extent of your insurers’ ability to intervene in your defence of a claim against you?
The last thing you want in the course of defending a claim is an irresolvable row with your insurers about how to conduct the defence of that claim. It may help to introduce into the policy a quick and clear means to resolve any disputes as to how the claim against you is to be defended or settled. That is in everyone’s interests and so there ought to be no objection to it.
Do you know what your continuing obligations under the policy are?
The policy may not be something you can simply put aside pending a claim. There may be, for example, an obligation to advise insurers of the creation or acquisition of subsidiaries or new business lines and if you don’t notify they won’t be covered. The policy may impose strict time limits for notifying insurers of a claim against you. Do you believe that, in a real life situation, there is a realistic chance of meeting those obligations? If not, you need to change the policy or change your internal reporting and procedures.
If you have chosen court or arbitration as the means of dispute resolution, are you clear why the chosen means was selected?
The relative merits of court proceedings and arbitration are not necessarily capable of straightforward comparison, and may vary depending on the type of policy involved. You need to think about which would work best for you, not merely accept what is offered. Insurers have lots of lawyers skilled in both court and arbitration work and so the forum you choose ought not to be a problem for them.
Have you read any excess layer policy terms?
Most policy reviews focus on the “primary layer” of cover (ie the one that will be hit first by any losses, subject to the application of any excess, deductible or retention). Where additional layers of cover are purchased these can easily be ignored as largely “technical” documents that are assumed to follow the language, and so provide cover on the same terms as, the primary layer. It is not guaranteed that the primary layer wording will be followed. The “technical” language may mask respects in which the layers of cover do not line up in harmony.
Should you be benchmarking your policies by reference to “market standard”?
It may well be the right benchmark, but it is worth thinking about. Some widely used wordings have pitfalls and flaws which it may be possible to negotiate away. “Market standard” is not necessarily an index of quality. Nor does it necessarily mean that the terms of the policy are slanted in your favour. It is just the “one size” form of the policy language that comes closest to “fitting all”.
This post is intended to provide guidance of a practical nature but does not contain legal advice or advice as to what action you should or should not take specific to your insurance needs or those of your business, or with regard to any particular situation.