Given these extraordinary times, many are looking more closely at their insurance policies and trying to figure out if they will be made whole by their insurers for the damages done by COVID-19. While insurance policies are not one of the most exciting reads it could be one of your most important reads now.
So how do you quickly determine what is covered or not covered by your insurance policy?
The first thing to understand is that each commercial property & casualty policy type covers a specific area of your law firm. Second, every insurance policy has six parts: declarations, insuring agreements, definitions, exclusions, conditions, and endorsements. Taking any of these parts out of context will lead to an erroneous conclusion.
Always start with the insuring agreement. This is the part of the policy that tells you what is covered and the responsibilities of the parties. The two parties to an insurance contract are the insured and company.
A good example of an insuring agreement is the Wesco Attorney Malpractice Policy. The insuring agreements states that the Wesco policy is “duty to defend” and a “claims made and reported” policy. The insured has a duty to report the claim and for covered claims made the company is responsible for providing a defense for the insured. With a duty to defend policy, if an insured does not allow the company to provide a defense it can jeopardize coverage. The insuring agreement also states how the company will settle a covered claim and what happens if the liability limits are exhausted.
Now that you know in broad strokes how the company will handle with a covered loss. But the devil is in the details, you need to go to the definition section to see the true meaning of all the bolded words in the insuring agreement. This we will cover in the next blog.
The following is the current Wesco Insurance Lawyers Professional Liability Insurance policy insuring agreement:
The Company will pay on behalf of the Insured sums in excess of the deductible that the Insured shall become legally obligated to pay as damages because of a claim that is first made against the Insured and reported to the Company during the policy period or any Extended Reporting Period arising out of an act or omission in the performance of legal services by the Insured or by any person for whom the Insured is legally liable, provided that:
1. prior to the inception date of the policy period, the Insured did not give notice under any other insurance policy of such claim or related claim or such act or omission or related act or omission; and
2. prior to the inception date of this Policy, or if coverage has been continuously renewed, prior to the inception date of the first policy issued by the Company, no Insured knew or could reasonably have foreseen that any such act or omission, or related act or omission, might be expected to be the basis of a claim.
The Company shall also pay claim expenses in connection with such claim.
The Company shall have the right and duty to defend, subject to and as part of the Limits of Liability, any claim against the Insured seeking damages which are payable under the terms of this Policy even if any of the allegations of the claim are groundless, false or fraudulent. The Company shall have the right to appoint counsel and to make such investigation and defense of a claim as it deems appropriate. If a claim shall be subject to arbitration or mediation, the Company shall be entitled to exercise all of the Insured’s rights in the choice of arbiters or mediators and in the conduct of an arbitration or mediation proceeding.
The Company shall have the right to negotiate a settlement or compromise of a claim as it deems appropriate but shall not commit to settlement of a claim without the written consent of the Named Insured. If the Named Insured refuses to consent to a settlement or compromise recommended by the Company and acceptable to the claimant, then the Company’s Limits of Liability under this Policy shall be reduced to the amount for which the claim could have been compromised or settled, plus all claim expenses incurred up to the time the Company makes its recommendation, plus fifty percent (50%) of the claim expenses incurred subsequent to the date of such refusal, which amount shall not exceed the remainder of the Limits of Liability specified in Section III. A.
If any claim covered under this Policy is resolved through the use of formal mediation within six months from the date it is first reported to the Company or within 90 days after suit is filed, the Deductible amount the Named Insured is obligated to pay will be reduced by fifty percent (50%), or by $12,500, whichever is less.
The failure of the Named Insured to expressly consent to a settlement or compromise recommended by the Company shall be deemed to be refusal to consent to a settlement or compromise.
D. Exhaustion of limits
The Company is not obligated to investigate, defend, pay or settle, or continue to investigate, defend, pay, or settle a claim after the applicable Limits of Liability have been exhausted by payment of damages and/or claim expenses, or any combination thereof, or after the Company has deposited the remaining Limits of Liability into a court of competent jurisdiction in satisfaction of a judgment. In such case, the Company shall have the right to withdraw from further investigation, defense, payment or settlement of such claim by tendering control of said investigation, defense or settlement of the claim to the Insured. The Company will initiate and cooperate in the transfer of control to the Named Insured of any claims which were reported to the Company prior to the exhaustion of such limit and the Named Insured must cooperate in the transfer of control of such claims. The Company agrees to take the necessary steps, as it deems appropriate, to avoid a default in such claims until the transfer has been completed, provided the Named Insured is cooperating in such transfer. The Named Insured must reimburse the Company for expenses it incurs in taking those steps it deems appropriate to avoid a default during the transfer of control.”
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080