Risk Management By CHARLES HuNTER MCREE
“BET THE COMPANY” CASES
Maximize Coverage Or Lose Big
What does a risk manager do when facing a “bet the company” case? This is a question with which no firm wants to grapple. Occasionally, risk managers must confront the issue, but they do not go it alone. Instead they face it with an insurance company.
Dealing with insurers in such ticklish and high-stakes cases can be frustrating, so let’s
begin with a reality check about insurance:
All coverage contains exclusions. Insurance does not pay for everything. Liability
policies require a showing of liability in order to pay. There is no duty to pay just because
it is a “bet the company” case.
Insurers will balk at paying policy limits if liability has not been demonstrated to a
compelling, convincing degree. While an insurer may weigh a policyholder’s liability
assessment and the views of other insurers, it will likely reserve the right to make an
independent liability evaluation.
Insurers get “tagged” enough to understand and analyze litigation risk. The “knock”
on some insurers is that they often settle too quickly, perhaps in fear of trying certain
cases. Bad experiences deter them from being riverboat gamblers or rolling the dice in
front of juries. Therefore, liability coverage is far from a no-fault policy.
Insurance policies are not ATM machines or credit lines from which to draw. Is it
really a “bet the company” case, or is the drive for settlement stemming from one of
the following factors? Is the risk manager’s business decision to buy low limits leaving
the company under-insured, or are there “business reasons” unrelated to legal liability
at play? Other factors might include a risk manager facing allegations or counts not
covered by insurance or management’s weariness about the case that it wishes would go
away. Battling insurers may tempt some policyholders to sue.
E Headaches of fighting a two-front
war: one against the plaintiffs, and the
other against the insurer. The time suck
now ratchets up when you are litigating
the underlying claim and coverage. This
is a huge distraction.
E Risk of losing. Even after investing the
time, money, and litigating, there remains a
chance that the risk manager might lose on
coverage. Risk managers should know as
well as anyone (and maybe better than most)
that victory in court is not assured. Rather,
you are at the mercy of a judge or jury who
may or may not see things your way.
E Burning bridges. Going nuclear and
suing could cause you to burn bridges
with insurers, who may then tag you as a
“problematic insured.” If you have a good,
long-term relationship with an insurer
that is a reliable source of capacity, then
are you willing to risk that?
The Perils of “going Nuclear”
In assessing the wisdom of “going nuclear” with the insurer, risk managers should not
view this as a risk-free proposition. Pitfalls abound. Some downsides to consider are:
E Transaction costs to pursue a coverage or bad faith action. Now there are two drains
on legal costs—one from defending the underlying claim; the other from pursuing the
How Risk Managers Can
The following guidelines can assist
you in making decisions about a “bet the
1 Do not select a particular quote because it is the cheapest option. As in
other realms, in insurance you get what
you pay for. Sometimes things are cheaper for a reason. One reason for the “cheap
quote” on insurance may be lousy claim
service. Perhaps you cannot command
adjusters’ attention because cost-cutting
has left them so under-staffed that they
are primarily consumed with putting out
fires. Maybe they can give cheap quotes
because they contest coverage on flimsy
grounds. Or, they dump your file on a
newbie who hasn’t the foggiest idea about
how to manage a serious claim. If your
claim is mishandled by a clueless insurance company, then no one will pat you
on the back and say, “At least you got a
great deal on that quote.”
2 Include claims handling and philosophy in insurance due diligence.
Too many insurance-buying decisions
are price-driven and are made based on