insurance contract review

Business Insurance & Managing Risk: You Don’t Know What You Don’t Know

What I do know is that it is hard to admit that you don’t know what you don’t know. Recently I gave a presentation at the 2015 Business Law & Corporate Counsel Symposium. The presentation was about business insurance and managing risk for businesses, the real message I wanted to leave my audience was that CEO’s, CFO’s and their advisors, like attorneys need to “know what they don’t know” and seek out an impartial expert to look out for their best interests.

How Well Do You Understand Your Business Insurance?

Over the years – I have heard so many people say “I didn’t know that”, “No one ever explained that to me” or “I really didn’t understand that”. It is all too common that people don’t fully understand the insurance products and services they have been sold.

So much focus is placed on the premium (cost of the policy) that the recovery aspect is overlooked and therefore not understood. When purchasing an insurance product you should understand how you will be indemnified should a loss occur (paid for your loss and returned to the condition you were in before the loss, no worse no better).

The exposures businesses face in the world are vast, complicated and dynamic. Insurance is only one of the avenues to address and transfer risk, but that too is complex and dynamic. There are many moving parts to coordinate to ensure a company is properly protected.

Here is a startling statistic: 75% of businesses that suffer a catastrophic loss go out of business within two years of their loss. I can promise that the reality and root cause of most companies’ problems who suffer these catastrophic events is that:

They didn’t “know what they didn’t know” about insurance and their coverage, and
They were SOLD insurance rather than purchased it – and there is a BIG difference

A number of attorneys at the symposium voiced their agreement and shared experiences regarding the misunderstanding of an insurance contract.. They valued the insight an impartial consultant can provide. That says a lot right there.

Be in the know! Seek out assistance to understand what you don’t know – it will pay off in the long run.

Risk Tip: Review insurance policies for consistency

Insurance policy provisions should be uniform as to named insured, notice and cancellation clauses, territory, etc.

Comment: All too often when reviewing policies we find that named insured’s do not match up from one policy to the next, notice and cancellation clauses are not uniform and on and on. We have reviewed thousands of policies and see this all the time. Unfortunately these may go unnoticed until a claim occurs. That’s when the heartache begins. You receive a letter denying or disclaiming coverage – now what?

Bottom Line: The insurance company will go by exactly what is contained in the insurance contract. Arguing intentions with an insurance carrier never really works out too well and can be very costly. If there is more than one entity, make sure they are listed or your contract contains omnibus wording. All notice and territory clauses should be uniform throughout each policy. If any of these clauses do not match up then severe coverage issues may result. Take the time to address it.

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The Life of an Insurance Policy

A few weeks ago I participated in a panel discussion regarding insurance issues. The first part of the discussion was to center around “the life of an insurance policy” – I thought to myself what exactly is the life of an insurance policy and trying to have a little fun with it, I came up with this poem. I am sure many of you can relate.

The Life of an Insurance Policy

Mine is somewhat of a lonely life.

I am born from an insurance company to satisfy a need,

a need for peace of mind and financial protection against many worldly risks.

I am courted by, and eventually partner with, individual consumers and businesses alike.

The way I get matched up is sort of like a blind date, if I look good on the outside then I can’t be too bad on the inside

Once I am with my new-found customer I sit on a shelf, stuck in a file cabinet or I’m in a PDF file somewhere…

No one touches me, reads me, caresses me or understands me – a lonely life

But they know I’m there…somewhere…

Ah, but when there is a loss and claim – that’s when the fun begins.

Then I have so many friends…claims adjusters, agents, attorneys

Everyone is interested in what I have to say…they want to understand me better.

I feel fulfilled – everybody’s reading me when there is a loss, even fighting over me – I’m feeling loved.

Although, sometimes people get mad with me…I didn’t provide what they thought they had

And to them I say…you really didn’t get to know me, with all of the good and all of my flaws.

All I wanted in life was a little peace, love and understanding.

R. Scott Wolff, CIC, CRIS

Are You Playing Russian Roulette With The Insurance Related Provisions of Your Everyday Business Contracts?

Many times company leadership does not put much thought to the importance of reviewing the insurance related provisions of their business contracts, but if there is a single message I want to make clear in this post, it is that mitigation of risk is essential.

It is difficult to express in dollar value the importance of contract reviews especially given that you truly don’t know what has actually been saved if a problem or risk was mitigated ahead of time … which is the point of risk management. Unfortunately, and too often business leaders don’t see the value either and just let it go. In reality, it is like playing Russian roulette … it is not if, but when.

Here is a perfect example:

Recently a company was doing some capital improvements and adding a building extension. It was a 3 million dollar project where the contractor presented a “standard form” contract agreement for the project. Standard for who? The word “standard” should raise a red flag and can get you every time. You think, they are a large contractor they know what they are doing. That is exactly right, they know what they are doing … protecting themselves.

Needless to say, there was an accident. A subcontractor hit a sprinkler-head which caused water damage not only to the new construction but to the existing building. The section of the contract relating to indemnification and insurance was written poorly for this particular project and the owner was left holding the bag on $100,000 in repair cost.

Are the following words just a bunch of “mumbo jumbo” or do you understand how they work within the various provisions of your business contracts – additional insured, pollution liability, waiver of subrogation, and indemnification? Also important, will these contracts make insurance policies between the business parties respond appropriately?

Your turn to pull the trigger …