Kickfannie LegalEdge

by J.J. Sherman, Esq.

Your Insurance Policy

Your company’s insurance policy is one of its most important assets. It’s one of your big safety nets against risks that are allocated to your business by contract or by law. Review your insurance policy on an annual or semi-annual basis, and you’ll be prepared when losses or law suits occur. Work with your CFO, your insurance broker and your lawyer to answer these four key insurance questions.

1. Do you have the right types of insurance coverage?

The types of business risks you’ll want to insure against will depend on your current business operations and state law. While businesses generally buy commercial general liability insurance, property insurance, workers compensation insurance, employers liability insurance, auto liability insurance, and if applicable, malpractice insurance, before they begin operations, there are a number of other insurance policies that are powerful tools to reduce risk exposure. For example, cyber risk insurance is valuable to a company engaged in online commerce. Employment practices liability insurance covers businesses against discrimination or harassment claims from company employees. Business interruption loss insurance hedges against company losses when your business can’t operate in its usual course. Tailor your insurance package to meet your specific business and industry needs.

2. Do you need to increase or decrease your insurance coverage?

The amount of insurance that you’ll need to cover business risks will vary from year to year depending on your current business operations. For each policy, review: What is the limit of liability per occurrence? What is the aggregate limit of liability? What is your deductible? Are defense costs included in the limit of liability?

3. When do you need to report a claim to your insurance company?

Read your policy carefully, so you don’t miss your window of opportunity to report a claim. Generally speaking each insurance policy will require you to report a claim during a specific window period. If a claim is not reported during that window period, then the insurance company can deny coverage. The window period can be short. In fact, a policy might require you to notify the insurance company within thirty days after you become aware that “a claim has been made”. Now, here’s the subtle question: “When has a claim been made”? You might take the position that “a claim has been made” when an actual lawsuit is filed against your company. On the other hand, your insurance company might take the position that “a claim has been made” when your company first receives a written complaint or demand seeking damages or alleging specific charges against your company. Each policy is different. Work with your team to figure out the correct timing to report a claim.

4. If you are the defendant in a lawsuit covered by insurance, do you have approval rights over any settlement offer?

Since the amount of a settlement might affect your insurance premiums, and it could establish precedent as to how your company deals with lawsuits in the future, check that you have approval rights over settlement offers. As a practical matter, if you do have approval rights, then once a claim is reported, you will work with your insurance company (or its third party administrator) and the insurance company’s defense counsel to manage the lawsuit (and any settlement) together.

Answer these four key insurance questions on an annual or semi-annual basis. You’ll thank yourself later.

This article is for informational purposes only and does not establish an attorney/client relationship.

About the Contributor

J.J. Sherman, Esq. is an experienced commercial real estate and corporate attorney focused on serving retail businesses in expansion mode, investors buying and selling commercial real estate, and business owners with commercial real estate property interests. She is the principal of Law Offices of J.J. Sherman, P.C.

Previously, J.J. Sherman was an attorney at Sullivan & Cromwell LLP in New York City and at Latham & Watkins LLP in Los Angeles.

J.J. Sherman obtained her Juris Doctor magna cum laude from St. John's University School of Law in New York and her Bachelor of Arts degree, summa cum laude, from Marymount Manhattan College in New York. See additional information on Law Offices of J.J. Sherman, P.C. at www.jjshermanlaw.com.

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