Document

Report
Insurance 101:
Understanding and interpreting your
policies
RIMS 2012
Philadelphia, PA
April 17, 2012
Insurance 101
Michael G. Mangino
Insurance Advisor
BP Corp North America
Christopher M. Brophy
Managing Director
FTI Consulting
Lawrence A. Hobel
Partner
Covington & Burling LLP
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Agenda
I.
Overview and General Principles
II.
First Party Coverage
III.
Third Party Coverage
IV.
Resolving Insurance Coverage Disputes
V.
Game – Risks and Rewards
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I. Overview and General Principles
• Who has the Risk of Loss
- First Party (risk to insured)
- Third Party (liability to others)
• What is at Risk of Loss
-
Injuries to Persons or Tangible Property
Employees
Intangible Property
Business Loss
• Who is at Risk of Liability for Loss
-
Insured
Management of Insured
Affiliated Entities
Contractual Parties (Additional Insureds)
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I. Overview and General Principles
• To what extent will Insured participate in risk
-
“Old Fashioned Way” (Fixed Amount, Subject to an Audit)
Use of Deductibles or Self-Insured Retentions (SIRs)
Retrospective Premium Plans
Captive Insurers and Reinsurers
• Contractual or other requirements for insurance
-
Contractual provisions and Additional Insured Requirements
Who should obtain the insurance
Worker Comp/Auto
International Risks and Local Policies
• Structures to Be Considered
- Risk Specific Coverage
- Package Policies (Multiple lines in one policy)
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I. Overview and General Principles
• Plain language is applied where it is ambiguous
– To figure out what the plain language means, you need to read the
provisions as a layperson would (not in a hyper-technical way) and in the
context of the policy as a whole
• Where language is ambiguous – i.e., where the language is
susceptible to two or more reasonable meanings – the
courts generally undertake to ascertain the “reasonable
expectations of the insured”
– Determine whether specific language is standard or manuscripted
– Courts allow the use of extrinsic evidence to ascertain the insured’s
reasonable expectations
– If the meaning is still not determined, the language is generally construed
against the insurer
• Exclusions
– Are construed strictly against the insurer
– Even if unambiguous, must be clear and conspicuous to be enforceable
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I. Overview and General Principles
• When Claim/Loss Occurs
• Notice to Insurers
- Precautionary and requirement of notice of potential loss
- Notice of Claim/Loss
- Tender of Defense
• Insurer Response
– Accept without Reservation, Denial or Reservation of Rights
• A Policy defense (e.g., failure to give notice or to cooperate)
• A Coverage defense (e.g., alternative theories of negligent and
intentional tort are plead, and only negligent acts are covered)
– Reservation of Rights
• Insurer seeks to avoid waiving of rights to contest coverage even
though insurer may undertake performance under policy
• If Dispute Later
– Obligation of Insurer to reserve on specific issue
– Policyholder Performance Conduct/Waiver/Estoppel
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II. First Party Coverage
• Perils Insured
• Property Loss Issues
- Replacement Cost v. Actual Cash Value
- Like Kind and quality
- Code Upgrades
• Business Interruption
- Period of Indemnity
- Extended Period of Indemnity
- Measuring the Loss
• Likely experience if loss did not occur
• Lost sales less discontinuing costs
• Idle Periods
• Make-up
• Extra Expense
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II. First Party Coverage
• Focused Coverage for Certain Losses
– May include third party protection
• Data Breach – Loss
• Crime – Dishonesty
• Building the Tower
– Premiums and self-insurance
– Binders and consistency in policy language
– What happens if coverage dispute
• Appraisal provisions
• Arbitration provisions
• Number of Occurrences and Loss
• Misrepresentation and Application Process
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III. Third Party Coverage
• Primary
– Lower limits of Liability
– Limits can be per occurrence or annual
– Typically provides defense obligation above policy
limits
• Excess-Umbrella
– Difference between Excess and Umbrella coverage
– Typically defense costs within policy limits (“Ultimate
Net Loss”)
– May or may not “follow form”
– May contain additional exclusions
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III. Third Party Coverage
What Triggers Coverage?
• Claims Made Coverage
-
Claim made during the policy period
Be certain to review the definition of “claim”
May also include the threat of a claim
May require that the claim be reported during policy
period
- Can usually purchase “extended reporting period”
- May have a retro date
- Examples: D&O, E&O, Crime-Fidelity
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III. Third Party Coverage
What Triggers Coverage?
• Occurrence Coverage
-
“An event, or continuous or repeated exposure to conditions which
results in personal injury or property damage during the policy period.”
-
May have Funnel language
-
Can Trigger more than one Policy
Long Tail Claims
•
•
•
•
Exposure: when claimant exposed to product
Manifestation: when injury reasonably capable of medical diagnosis
Injury in Fact: when actual injury even if not manifest
Continuous trigger: from exposure to manifestation (and possibly beyond)
-
Allocation – pro rata, all sums, who pays as to coverage gaps
-
Each injured person a separate occurrence, each property as separate
occurrence or Claims Aggregate
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III. Third Party Coverage
Duty to Defend
• ”Right and duty to defend any suit seeking damages …
even if the allegations of the suit are groundless . . .”
• Defense based upon potential for indemnity
- Generally insurer cannot look behind allegations of the underlying action
- Defense continues until no potential for coverage
• If an insurer reserves its rights based on a coverage
defense, the insured generally is entitled to independent
counsel (“Cumis” counsel)
• If the insurer reserves its rights, it may have rights to
seek reimbursement of defense expenses allocable solely
to non-covered claims
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III. Third Party Coverage
Duty to Indemnify
• Indemnity Language – GL coverage
-
We will pay those sums that the insured becomes legally obligated to
pay as damages because of bodily injury or property damage [or
personal injury or advertising injury] to which this insurance applies.
• Damages
- Equitable Relief
- Punitive Damages
- Administrative Requirements vs. Court Judgments
• Consent to Settlement Clause
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III. Third Party Coverage
Other GL Issues
• Owned, rented or occupied property
• The Insured’s product
- But may be covered if incorporated into a building or other product
• Exclusions
-
Faulty workmanship
Worker Comp
Pollution Exclusions
Intend/Expect
• Cooperation and Settlement
• Misrepresentation and Disclosure
• Successor Access
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III. Third Party Coverage
OCIPs
• Owner Controlled Insurance Programs
• Owner purchases insurance to protect itself and
contractors
- Typically involves managing Risks for Construction and
O&M Projects
- Focuses on contractually required Worker Comp and GL
Insurance
- Reduces potential for coverage disputes and cross suits
between contractors: OCIP is a no-fault site
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III. Third Party Coverage
OCIPs
• Pros and Cons
- Typically can obtain higher limits than Contractors
- Reduced potential for coverage disputes and cross suits between
contractors. However, aggregate stop loss provisions may trigger such
disputes
- Contractor and Owner interests are more aligned
- Owner pays up-front costs. Owner should control claims defense and
management
- Contractor loss experience can impact rates and contractor’s cost of
business
- Sometimes difficult to demonstrate cost savings
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III. Third Party Coverage
D&O and Professional Liability
D&O Insurance
-
Suits against Directors and Officers
-
Securities actions against the company
Professional Liability Insurance (E&O)
-
Suits alleging errors and omissions in professional work
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III. Third Party Coverage
Basics of D&O Insurance
Side A
-
Insure directors and officers when they are not indemnified
Side B
-
Insure corporations when they indemnify their directors
and officers
Side C
-
Insure corporations for certain types of direct liability
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III. Third Party Coverage
D&O Exclusions
• Wrongful Profit
• Deliberate Criminal or Fraudulent Act
• In fact vs. final adjudication - settlements
• Insured vs. Insured
• Severability clause
• Prior Claims
• Regulatory Exclusions
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III. Third Party Coverage
Basics of E&O Coverage
• Covers claims of negligence, misrepresentation, violation
of good faith and fair dealing, wrong advice
• For a “Wrongful Act”
• In the rendering or failing to render “Professional
Services”
• Coverage for Loss Resulting from a Claim made (and
reported?) during policy period
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IV. Resolving Insurance Coverage Disputes
Litigation Provisions
-
Mediation Requirement
Choice of Law
Choice of Forum
Arbitration Provisions
-
Choice of Law (Bermuda, NY, English)
Choice of Forum (Canada, London, Singapore, Bermuda, New York)
Selection of ADR Organization and Rules
Managing Conflicts among Clauses
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