Congratulations on the pursuit of a management liability policy! If purchased properly, your new policy will provide your company, officers and directors with protection and piece of mind for a full twelve months. Disclaimer – provided you comply with all terms and conditions contained within the policy.
It is important to understand that management liability policies are non-standard and operate differently than the industry standard insurance policies you are familiar with (general liability and auto). To put it in more familiar terms – you are now going to be flying a helicopter, it operates differently than your car. As such, there are at least a few things you need to know so as to avoid the most common pitfalls that lead to coverage declinations.
In order for coverage to apply in the event of a claim, you must report the claim to the carrier within the specified timeframe as spelled out in the policy. The terms of this can vary greatly – the policy may say that you must report within 30 days of becoming aware of the claim AND within the policy period (as strict as it gets) or it may say that you must report a claim as soon as possible (a fancier term, “practicable” is used) but in no event later than 90 days after the policy period (about the most generous term I have seen). Terms vary within each policy – you will need to read your policy to know what your timeframe requirement is. Note that the timeframe of “Who” becomes knowledgeable may also play a part – that is, the clock may only start ticking when certain individuals become knowledgeable (ypically the CEO, CFO and sometimes the in-house attorney and or HR representative). Point being – someone must read the policy to know for sure.
What constitutes a claim
A claim is a complaint coupled with a demand. It may be delivered orally or written and the demand may be for money or something else, a non-monetary action, perhaps. The point is that once a complaint coupled with a demand is made, a claim has been triggered and the insured needs to act.
Claims Made Policy
Management liability policies only provide coverage for claims that are made (triggered) during the policy period – regardless of when the alleged wrongdoing by the insured took place. The policy may include exceptions:
If there is a retroactive date applied to the policy, then only claims arising out of alleged wrongful acts that took place after the retroactive date will be covered. A retroactive date is often the date that insurance coverage was first put in to place. A retroactive date alleviates the carrier from covering acts that took place prior – thus limiting their exposure.
Exceptions may also be made for certain individuals, wrongful acts, previously known matters, etc.
Self Insured Retention vs Deductible
While some management liability policies may include a deductible, most will refer to a retention. Both require the insured to contribute towards costs, the difference being the timeframe at which payment is made. Deductibles are typically addressed upon completion of the claim. Retentions are paid upfront – the insured pays all associated costs until the retention amount is met at which point the insurance carrier starts paying.
25% of claims are denied, with no contest in court, because the insured did not give notice to the carrier within the stipulated timeframe in the contract.
Management liability policies are so different because there is no industry standard policy form – each carrier writes their own. As such, each policy contains different terms, conditions, exclusions and even definitions. In order to avoid coverage denials, you must be aware of the rules and know how to operate the policy.
Intermediate level – sneek peek
Your policy may contain what is referred to as a hammer. It isn’t labeled as such and you may find yourself wanting to go for the hammer in your toolbox when I tell you this, but somewhere in your policy the insurance carrier may state that in the event of a claim – if the carrier decides to settle AND you agree to settle, quickly, then all will be good and the carrier MAY even offer to reduce your retention/deductible by a token amount (typically 10%).
If you do not agree to settle… then, well things change and the bottom line is you will be spending more money. The policy will stipulate that the insurance carrier will only pay the amount that they proposed for settlement – after which you as the insured will be responsible for paying the balance of all claim costs. Many times the policy will go on to say that once the insurance carrier has paid out the amount they believe they could have settled for, then they will continue to pay a percentage of costs that follow – typically 70 or 80% , until they exhaust the limits on the policy. The insured pays the rest.
Reading the policy will not void the warranty. Rest assured you will not break the policy but efficacy could be seriously jeopardized if not utilized properly.
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