United States: Guarding The Company Wallet: Trends In Insurance Law


Master the Basics

Understand Your Coverage. Know the terms of your insurance policies. What losses are covered and excluded? What are your obligations in the event of a claim? Keep your policies handy for easy reference in the event of a potential or actual claim.

Secure Your Policy. The insured, not the insurer, must prove coverage—including both the existence and terms of the insurance policy. If a policy is lost, all hope is not, as most courts allow an insured to prove up a policy through secondary sources. These sources may include evidence available from the insurer or evidence of standard form policies, along with evidence that your insurance policy followed the standard form.

Step By Step: Claim Your Coverage

Notice. If you believe you may have a covered claim, provide notice to your insurer, closely following the terms of the policy. Although the express terms of your policy govern, there are a few general rules to keep in mind. First, after providing notice, keep your insurer apprised of the status of the claim—results of any investigation, demands, pleadings and other court filings. Second, if you want your insurer to pay, be it an invoice or a settlement demand, forward the bill or demand to your insurer. Failure to provide timely not ice of a claim could result in losing some or all of your coverage.

Duty to Defend. Does the insurer have a duty to defend you in the lawsuit? The terms of the insurance policy and the allegations in the pleading govern.Most courts broadly construe the duty to defend, meaning that if there is any possibility that the allegations made in the lawsuit could give rise to a covered claim, then the insurer has a duty to defend.

Selecting Counsel. Assuming your policy grants your insurer the right to select defense counsel, you may nevertheless have a right to select your own counsel if your insurer agrees to defend, but does so under a reservation of rights. If the reservation of rights creates a conflict of interest, generally you can select your own counsel. A conflict typically arises if the facts to be decided in the lawsuit are the same facts upon which coverage depends. Regardless of who selects defense counsel, the defense lawyer owes loyalty to you as the client, and legal privilege applies between counsel and the insured unless otherwise waived.

Duty to Cooperate. Most policies require the insured to cooperate with its insurer in providing a defense. This duty extends beyond the duty to provide notice and forward pleadings, and may require the insured to provide factual information; participate in discovery, including depositions; and testify at trial. As with notice, failure to ooperate could result in losing some or all of your coverage.

Privilege. Consider privilege before providing privileged information to your insurer. Most states do not recognize an insurer/insured privilege. Although some courts have recognized a privilege on a case-by-case basis, sending privileged materials to your insurer may waive legal privilege and open up that information to existing or future plaintiffs.

Covered/Uncovered Claims. How does coverage apply if the suit involves both covered and uncovered claims? Often, as long as some claims are covered, the insurer must defend the entire suit. However, when a clear distinction can be drawn between covered and uncovered claims, some courts only require the insurer to pay defense costs that relate to the covered claims. With regard to the insurer 's duty to indemnify for losses, the insurer generally is liable only for covered claims.

Understand Your Position if the Insurer Denies Coverage

Burden of Proof. In a coverage lawsuit, the initial burden to prove coverage under the terms of the policy falls on the insured. If coverage is established, the burden then shifts to the insurer to show that an exclusion to coverage applies. If there are any exceptions to the exclusion, the insured bears the burden to prove that this exception to the exclusion applies. In short, proof of coverage falls to the insured; proof of exclusions to coverage fall to the insurer.

Rules of Construction. The general rules of contract construction apply. Some (but not all) courts generally construe ambiguous policy language against the insurer.

Bad Faith. Many jurisdictions impose a common-law and/ or statutory duty of good faith and fair dealing on the insurer. States vary on whether the applicable statutes allow the insured to sue the insurer for any breach of this duty.


Fill Your Gaps: Add Cyber Insurance to Your Portfolio

Scope of Coverage. Review your general liability coverage and understand any gaps to be covered by the cyber policy.

Application Disclosures. Consult with IT, legal and risk management professionals and ensure that your insurance application accurately discloses current security measures. Any inaccurate or incomplete disclosures may limit coverage or result in a later denial of claims.

Definitions. When negotiating policy language, define terms broadly. Avoid using specific statutory language from any particular state; doing so may limit coverage in other states.

Pitfalls. Vague policy conditions may lead to disputes over coverage. For example, a policy condition requiring the insured to take "reasonable" data security measures may invite conflict over the meaning of "reasonable." Verify that coverage is not limited based on the geographic origin of the attack. Similarly, clarify whether the policy covers state-sponsored and terrorist attacks.

Retroactivity. Negotiate a policy that includes retroactive coverage for undiscovered data breaches or other events that occurred before the policy was purchased. Unknown breaches that occurred years in the past may still give rise to liability.

Personal Devices. Understand how coverage applies to employees' use of personal electronic devices.

Protect Your Assets

Protecting company assets includes understanding the scope of your insurance coverage and meeting each of the technical requirements of the applicable policies, including prompt notice. Follow these rules, and you will be better positioned to collect any insurance available under your policies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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