4 Tips for Maximizing Insurance Coverage in Business Lawsuits
By Amy Elizabeth Stewart
One of the most frustrating events in business is being served with a lawsuit. If your company has prepared for such an event, however, you should have one or more insurance policies in place that will help defray expenses.
Determining which policies apply can be difficult, as policy language is not always crystal clear. You may be able to activate one or more of the following kinds of coverage:
- Commercial general liability (CGL)
- Errors and omissions (E&O), also known as professional liability insurance
- Directors and officers (D&O)
We’ll discuss each of those policies in more detail below. But first we offer some tips for maximizing your company’s insurance for business torts.
1) Identify all potentially applicable policies at the outset: Upon receipt of a demand letter, notice of investigation, lawsuit, or demand for arbitration, review the facts alleged and ensure that someone in risk management (or legal) identifies all potentially applicable policies. Keep in mind that a single lawsuit may contain allegations that trigger more than one policy. For example, a lawsuit alleging breach of contract and tortious interference with contractual relationships may be covered under a CGL policy, as well as an E&O policy.
2) Give notice early to all insurers: Coordinate promptly with your insurance broker to give notice to the appropriate insurers. If your organization uses multiple brokers, keep in mind that each will likely be familiar only with the policies it has placed and may not be aware of coverages placed through other brokers. It’s better to give notice for policies that end up not providing coverage than to not give notice to an insurer that would have covered the claim but for late notice.
3) Be aware of coverage triggers: Some policies are triggered when the “occurrence” takes place; others are triggered when a “claim” is made. Take care to identify the appropriate policy period when giving notice. If in doubt, identify all potentially applicable policy periods.
4) Notify excess carriers as well: Many businesses purchase what’s known as excess coverage, which, as the name implies, provides limits in excess of an underlying liability policy. If there’s any possibility the claim will reach excess layers, put excess carriers on notice from the outset to avoid an oversight down the road.
What Policies Cover What?
While CGL policies insure certain property damage and bodily injury risks, many business tort exposures may also be covered by CGL. General corporate obligations are typically not insured, but lawsuits alleging business tort claims can trigger coverage under CGL, E&O, and D&O liability policies.
Commercial general liability insurance (CGL) — Coverage A v Coverage B
While many CGL claims involve “occurrences” (i.e., accidents) that cause bodily injury or property damage, keep in mind that CGL policies also cover liability for personal injury and advertising injury as set forth in the Coverage B insuring agreement. Coverage B applies to an “offense” that occurs during the policy period and, unlike Coverage A, expressly extends to intentional torts, such as:
- Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services
- Oral or written publication of material that violates a person’s right of privacy
- The use of another’s advertising idea in your advertisement
- Infringing upon another’s copyright, trade dress, or slogan from your advertisement
Business torts such as disparagement, tortious interference, defamation or trade dress infringement merit analysis for potential coverage under Coverage B. Antitrust and copyright infringement claims may also trigger the personal and advertising injury provisions of a CGL policy.
Professional liability insurance (E&O)
Professional liability policies, also called E&O policies, protect providers of professional or specialized services from liability arising from the performance of those services. Because most CGL forms exclude coverage for liability arising from the delivery of professional services, architects and other design professionals, accountants, engineers, healthcare providers, attorneys, technology vendors, investment brokers, and others who provide technical or specialized services benefit from building an insurance program that includes E&O coverage. Additionally, professional liability insurance usually provides coverage for damages caused by “wrongful acts” in the delivery of professional services, including economic loss.
Unlike CGL insurance, professional liability policies are not standardized. The scope of coverage is often (or should be) customized to your business, which should be carefully described to avoid inadvertent exclusion of coverage for core risks you intend to cover.
Ideally, the insurance procurement process should involve counsel and others who understand the company’s risks and exposures. The definition of “professional services” will likely be critical to the scope of coverage, since activities not included in the definition may not be covered. Exclusions should also be reviewed carefully to ensure the excluded conduct is not central to the risk the company seeks to insure.
Directors & Officers liability insurance (D&O)
D&O policies protect the directors and officers of the insured organization from liability against loss stemming from acts, errors, and omissions committed by them in their official capacities. Like professional liability insurance, D&O policies are not standardized and can vary widely from carrier to carrier and from insured to insured.
Private company D&O policies may provide coverage to the insured entity that is nearly equivalent to the coverage provided to directors and officers. The definition of “insured” is also critical to the scope of coverage, with some D&O policies limiting coverage to “duly elected” directors and officers and others extending coverage to all employees.
Notably, D&O policies generally exclude fraud and self-dealing, but many provide for a defense of such claims until the excluded conduct is established by a “final adjudication” or similar determination. They also generally exclude liability arising from the delivery of professional services and other risks intended to be covered under policies such as CGL, employment practices liability, fiduciary liability, and professional liability policies.