One bad claim experience can overshadow any number of positive ones. While most insurance claims have good outcomes, there are a number of actions that can interfere with the recovery of insured losses:
1. Emphasize price over value and cost over coverage. If you treat your insurance like a commodity on the front end, your claim may be treated like one on the back end. Price matters, of course, but are you prioritizing price over breadth of coverage, carrier relationships and, ultimately, payment of claims? Make sure your broker and insurers fully understand your priorities in any given year, particularly when your circumstances may have changed. If your insurance provides less coverage or less certainty of coverage, the cheapest option may actually be the most expensive in the long run.
2. Meet your insurer for the first time after the claim arrives. This point is a natural extension of the first. To your insurers, relationships may not appear to matter if you are perceived as only buying based on price. Make sure your brokers have strong relationships with your carriers, and more importantly, make sure you do as well. How well do you truly know the claims team behind your coverage? How well do you know the top decision-makers, from both underwriting and claims, on the issue of whether a claim gets paid?
3. Provide claim notice to your insurers only for large claims. Most insurance policies include a notice condition whereby, if you fail to notify the insurer of the claim in a timely manner, the insurer does not have to pay. You should never lose coverage by failing to provide notice. When in doubt, notify. Do not assume a frivolous claim under your retention will stay that way, or that it will not lead to other, more significant claims later.
4. Delegate but do not communicate. Claims will go more smoothly if there is communication between all key parties. In many companies, finance and procurement control the insurance budget, risk management is in charge of negotiating the purchase of insurance, and legal handles all claims. But, with really bad claims, none of them speak to each other. This is a recipe for disaster. Legal should include risk management in the claim process and work with finance to properly evaluate and weigh contract terms—and the potential cost of obtaining better terms—in the insurance-buying process. Likewise, while finance and legal should build direct relationships with the insurers, risk management is typically closest to the key parties and can often play an integral role in navigating through to a successful resolution.
5. Keep your insurers in the dark. Claims will not go well if you and your lawyers ignore insurance until you are on the way to mediation. Consider the experience of a claim representative. A case is filed and lawyers and insureds declare: “Frivolous claim with no merit! We shall vigorously defend our honor!” Months or sometimes years later, lawyers and insureds say to their insurers for the first time: “We must settle this claim now for our full insurance limits!” Far too often there is very little communication in between. The client is ready to settle but has done nothing to ensure its carriers are ready as well.
6. Retain legal counsel without insurer input. Whether you or your insurer have the duty to defend, it is in your best interest to effectively manage your defense expenses rather than engage multiple firms in multiple jurisdictions without telling your insurers. Your insurance carriers may be able to offer negotiated rates with law firms and may have insight on specific experience with law firms in your area—sometimes even including prior experience with the very firm suing you.
7. Ignore consent requirements. If you want a claim to go poorly, settle your claim using insurer dollars without running it by them first. Most policies require some level of insurer consent prior to incurring defense expenses or agreeing to settle.
8. Fail to consider all potential insurance. Most of the time, a D&O claim will only be covered by D&O insurance, a general liability claim by GL insurance, and a cyber claim by cyber insurance. But, in a bad claim, you will need coverage anywhere you can find it. If your search for excess insurers or other potential lines of coverage begins for the first time years after the loss event, that may result a bad claim experience. Instead, consider all potentially applicable insurance at the time the claim occurs.
9. Do not read your insurance correspondence. It may be tempting to table a response to a long reservation of rights letter with overly broad requests for detail and information (where you have a very large retention and do not anticipate the claim will ever exceed it, for example). “File it and forget it” is a direct path to a bad claim, however. Most policies include express cooperation clauses that may be implicated here. A careful reading of insurer coverage correspondence can help to ensure a good claim experience. Review reservation of rights letters carefully with your broker and legal defense team both in terms of defense obligations and current or future legal positions for potential impact on indemnity for any future settlement or judgment.
10. Be greedy. If you want to mess up an insurance recovery, listen only to your version of reasonable, ignore insurer coverage defenses, take an overly aggressive stance and go for broke. Sometimes bad claims are just plain bad: bad facts, bad law, bad actors, and valid—or at least potentially valid—coverage defenses. Be practical when it makes sense to be practical. While reasonable minds can disagree, the most reasonable minds will find middle ground. Always be quick to listen, slow to speak and slow to anger. If the carriers have good defenses, sometimes it pays to acknowledge that and reach a compromise. In a difficult claim, compromise can make really bad look pretty good.