THE ROSETTA STONE – OR, A METHOD TO UNLOCK THE MEANING OF AN INSURANCE POLICY
We all remember the story of the Rosetta Stone. Right?
The Rosetta Stone is a granodiorite stele discovered in 1799 which is inscribed with three versions of a decree issued at Memphis, Egypt in 196 BC during the Ptolemaic dynasty on behalf of King Ptolemy V Epiphanes. The top and middle texts are in Ancient Egyptian using hieroglyphic and demotic scripts respectively, while the bottom is in Ancient Greek. The decree has only minor differences among the three versions, so the Rosetta Stone became key to deciphering Egyptian hieroglyphs, thereby opening a window into ancient Egyptian history.
By © Hans Hillewaert, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=3153928
For thousands of years no one could decipher Egyptian hieroglyphs. Then the Rosetta Stone was discovered poking out of the dirt and suddenly, the world of the Ancient Egyptians opened up. In a similar vein, for as long as insurance policies have been drafted by lawyers, people – very smart people - have struggled to understand the resulting indecipherable insurance policies. For many people, they are a confusing mishmash and cross-referenced panoply of sections, definitions, obscure words no one ever uses, words with secret meanings in the insurance industry, exemptions, exceptions and exemptions from exceptions. Have you ever read, or tried to read your Company’s insurance policies? After about two pages deep into the 100-page manuscript, most folk's eyes just glaze over and they move onto something else more consumable -- such as last quarter’s financials or, my favorite, “Road & Track.”
Alternatively, some companies delegate the task of buying, maintaining and understanding insurance to a lucky VP or Head of Risk Management. Unfortunately, unless she has been heavily involved in a coverage dispute or worked as a claims adjuster for an insurance company, she may not get much further than reading the “Dec Page” that identifies how much coverage was purchased and the cost of the premium.
Not understanding the insurance contracts for which your company pays tens of thousands of dollars in premiums is a dangerous gamble. Instead of really understanding one of the most important assets a company can own, many companies simply assume that the insurance they purchased covers the company for whatever losses it will suffer. That assumption is no better than sticking one’s head in the sand.
Well, you may ask, can’t I trust my insurance broker to make sure I am covered? The answer – no, you shouldn’t. The millions of dollars in defense and indemnification coverage you buy year in and year out can save your company from significant losses – and even save the company itself. Make sure you are covered.
Let me tell you a short story.
I once was asked to review a company’s insurance policy. The first thing I asked was “What kind of risk are you most worried about? What keeps you up at night? What do you most want to protect with insurance?” The client operated a methane gas collection system on a landfill and was most concerned about suits from residential neighbors claiming environmental damages to their property and health from the landfill. I studied the policy and concluded there was no coverage for that risk. A meeting was called, and the broker and the insurance company representatives were invited. They were asked in advance to come to the meeting prepared to state whether the risk was covered. Six representatives appeared and each stated unequivocally that the client was fully and completely covered for liability claims from neighbors arising from contamination from the landfill. I then walked them through the policy and in five minutes each one reversed position. They were stunned to discover that the insurance they had been selling provided no coverage for the one risk that kept the client up at night. Note – these folks were from the sales side of insurance, not the claims side. Their job was to sell coverage, not deny it. The lesson? Do not accept your broker or your insurer’s opinion of coverage. You must read the policy yourself.
So, now we have come full circle back to the Rosetta Stone. How to best unlock the mysteries of your policy? Here is the key. Only read your insurance policy in the context of a very specific set of facts that comprise your worst fear. It is impossible to understand a one-hundred-page contract without first focusing your inquiry on a specific set of facts and weighing the words of the contract against those facts. Follow these steps. It will be worth it, I guarantee you.
STEP 1: List the specific claims that you are most concerned could harm your company and for which you want insurance protection. There may be several that keep you up at night. For example.
· We sell products that contain chemicals. We are concerned that if someone misuses our product and is harmed, they will sue us for their damages.
· We are in a highly competitive market that relies on new and emerging technology. We are concerned that a competitor will sue us for patent infringement or claim we stole their trade secrets.
· We make and sell consumer products in the natural food industry. We are concerned that a class action law firm will find some reason to sue us claiming we are advertising misrepresentations about our products.
· We hire many highly skilled technicians who change jobs frequently because of better opportunities. We are concerned that another company will sue us claiming that a recent hire violated her non-compete/trade secret agreement by joining us.
· We are a 50/50 owned closely held company and are concerned that if there is a derivative action or corporate divorce, the legal fees will consume us, or we will become individually responsible to pay them and/or any damages.
Take your time in this exercise. Make it a company collaborative effort and invite many thought leaders across many departments. This step is the first step to unlocking your policy and ensuring that you are covered for the risks that can make or break your company. And, in performing this exercise, you will learn what keeps your top team members up at night as well. All good stuff.
STEP 2: Save yourself some time and give your list to your broker/insurance agent and ask them to tell you whether your worst fears are covered. If they say something is not covered, believe them but, as a learning experience, ask them to explain why by walking you through the policy.
STEP 3: Take only one of the remaining “worst fears” and start on page one of the policy with a highlighter and a pen in hand and read the policy with only that specific worst fear scenario in mind. Much of what you read will be immaterial. Highlight what is not. Make notes in the margins. Go back and read the highlighted portions again and focus on what might appear to be conflicting and confusing terms and provisions. If you still cannot determine whether you are covered or not, call the broker/agent and walk through the analysis with them. Keep at it until you are confident you are covered or conclude you are not. If you are still unsure, walk a lawyer with experience in insurance coverage litigation through your analysis.
STEP 4: Repeat STEP 3 with each “worst fear.”
A few tips for STEP 3, first make sure you have a complete copy of the entire policy and all endorsements. Next, understand that insurance policies are designed to provide broad coverage but then narrow that coverage with definitions and exemptions. Sometimes, there are exceptions to exemptions that put back in coverage that was previously removed. And, do not forget to look at the endorsements (usually at the back of the policy) that can completely replace sections of the policy or modify sections. I find that creating a diagram with boxes and arrows can help me visualize what is covered and what is not.
My prediction is that when you are finished, you will learn that much of what you thought would be covered, is not covered. This is a good thing. Now you know where you are exposed. If you cannot negotiate special insurance to cover your concerns or if the premium for that additional coverage is too high, you will need to determine and employ risk mitigation measures to try to minimize risk, such as instituting more rigorous hiring practices, hiring consultants to scrutinize product labeling, employing better patent infringement hygiene analysis for products in development and so on.
Once you learn how to analyze your insurance through the lens of actual and concerning risk scenarios, you can employ that skill each time you identify new risks, your products or services change, you acquire a new operation or company, and each year when you buy new insurance – or even when buying homeowner’s or auto insurance for your family. Are you personally protected by your auto policy if your teenager hurts someone in a car accident when driving your car? Are you actually covered by your personal policy when driving a rental car? Are you covered if your pet dog bites a neighbor, or mailman? What if they have bitten before, does that make a difference?
Don’t stick your head in the sand. Protect your company (and yourself) from risk by proactively understanding what is and is not covered by your insurance and then modifying and adapting the way you do business to protect against the gaps in coverage.
Brad Fawley is a litigation attorney that has represented policyholders in disputes with insurance companies for 36 years in courts across the country. He does not represent insurance companies. Brad can help if you or your company has a dispute with an insurance company or just want someone to review your coverage. For reimbursement of travel costs only, Brad will also be happy to visit your company and provide your management team with a tutorial on the ins and outs of insurance coverage – from the policyholder’s perspective.
Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Fawley PLLC. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.