Don’t Judge an Insurance Policy by its Cover

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[co-author: Larry Heisler]

Whether you are a developer, builder, design professional, subcontractor, or supplier, one of the most important aspects of risk management is ensuring both you, and any entities with whom you contract, have good insurance. But, do you really know if you have enough insurance and the types of coverage you need?  Ask yourself the following questions and speak to your insurance broker (or find a new one) if you cannot answer them.

(1) Beyond the typical CGL, E&O/PL, & Auto policies, are there other policies you need to protect your company?

Companies often forget to consider some of the other beneficial insurance policies that exist, so if you have not done so already, ask your broker about Employment Practices Liability Insurance, Business Interruption Insurance, Key Person Life Insurance, Data Breach/Cyber Insurance, Directors and Officers Insurance, and Pollution Liability and Environmental Insurance.

(2) Do you have a “Choice of Counsel” endorsement?

Ask your broker about a Choice of Counsel Endorsement.  This is one of the easiest ways to keep control over any potential litigation. With this endorsement, you are able to choose your lawyer, instead of using the lawyer(s) named by your insurance company. In litigation, where your business and personal reputation are at stake, it can be immensely helpful to have a lawyer who knows your business. The lawyer who writes and reviews your contracts, helps with your employment issues and general business matters, knows the ins and outs of your business, and is familiar with you and your approach to business, is often the best lawyer to represent you in the event of litigation. A Choice of Counsel endorsement allows you to use such lawyer as your chosen counsel in litigation covered under your insurance policy, instead of the insurance company’s choice, who may not be familiar with you or your business.

Choice of Counsel is not automatic, so you need to ask specifically if you can get this endorsement.  Sometimes your insurer will allow you to get the endorsement, sometimes it requires an additional fee, and occasionally they will not allow it, but it does not hurt to ask.

(3) Are you truly aware of all of the exclusions in your Commercial General Liability Insurance (CGL) policy?

Among other things, you and your broker should do the following:

  • Ensure your CGL policy includes coverage for Ongoing Operations and Products/Completed Operations;
  • Ensure your CGL policy does not have a “subcontractor exclusion”;
  • If your CGL policy has an exclusion for contractual liability, consider the costs for such coverage; and
  • Ensure your broker explains, and you understand, all other exclusions in your CGL policy.

In addition, other policy exclusions that may appear in your CGL policy include exclusions for “high risk” trades, pollution damage, mold damage, cost of defense, and exclusions relating to whether your policy is a claims-made or claims-occurrence policy.

(4) Do your subcontractors or other entities with whom you contract truly have sufficient insurance?

Developers and general contractors often forget that they should be annually collecting Certificates of Insurance and Additional Insured Endorsements to ensure their subcontractors have the same types and levels of coverage as they have; have named the builder/developer/general contractor as an “Additional Insured” on their policies; have coverage that is “primary and on a noncontributory basis”; and have coverage for Ongoing Operations and Products/Completed Operations as part of their CGL policies. It is of no use to say you require insurance of your subcontractors if you do not enforce the rule and collect Certificate of Insurance and Additional Insured Endorsements each year.

As you consider all the risks that your business faces, reviewing your insurance annually and asking the appropriate questions of your insurance broker is an important step in your risk management process. Consult with your insurance broker and your attorney to ensure you have the right coverage appropriate for your business.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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