Masonry Magazine January 1968 Page.26
What? Not Covered!
Specification writers would perform a service, too, by being less ambiguous about what insurance coverage is required under the terms of their contracts. It is common to encounter a requirement for such coverage "as will benefit the owner" or "for the protection of the owner," for example. This immediately raises a question about what is required.
The mere fact that a contractor insures himself may inure to the owner's benefit in a way, by making it less likely to that the owner will be involved, but is that enough and is that what the writer meant? Or does he mean that a Protective Liability policy in the owner's name is also required? Of whom? And if those of us in the insurance business do not know what is required, what chance does someone else have?
It is much preferable to spell it all out in advance so that insurance costs can be accurately calculated (and included in the contract cost) with the owner-client, architect and engineer actually protected to the degree intended.
RESERVATION OF
RIGHTS LETTERS
The odds are excellent that most readers will never receive a Reservation of Rights letter from their insurance carrier, or, for that matter, even personally know someone who has. The vast majority of all claims are handled with reasonable dispatch and a minimum of fuss or inconvenience to the insured, who is usually not directly concerned thereafter with progress of the defense or settlement transactions.
On occasion, however, a set of circumstances may lead your company to send you such a letter following notice of a claim under any one of several liability policies, and our purpose here is to dispel some of the confusion and concern surrounding such admittedly very rare cases.
In plain language, such letter will (1) acknowledge the notification of claim against you, (2) make the suggestion that there is a serious question about its being covered under terms of the policy in question, (3) say that while the matter will be thoroughly investigated, and (4) in the interim defended, (5) the company reserves the right to later make up its mind about whether or not it is covered. Such expeditious investigation and defense, then, should not be interpreted as formal acceptance of coverage, although it is undertaken at the carrier's expense.
Upon receipt of such a letter, it would be prudent to consult with your insurance representative (someone representing your interests) about the specific facts giving rise to the coverage question. A copy of the letter should also be forwarded to your attorney for his consultation and recommendations concerning participation in defense proceedings, as well as securing access to claim records. The potential seriousness of the claim will most likely dictate the degree to which you may wish to take active part in the case thereafter.
Once their investigation is completed, the insurance company will again report back to you concerning their conclusion about coverage. This could either be good or bad news, but should not come as a surprise because you hopefully will have been kept informed of developments of consequence as they come to light.
This kind of situation can never be pleasant, but the initial defense afforded by your insurance company does relieve some tension, and, while it may be just luck, the writer has personally never seen such a case ultimately decided against coverage for the insured over the past twenty-two years.
CLAIMS IN EXCESS OF
POLICY LIMITS
A summons and complaint demanding $500,000 because of bodily injury or property damage allegedly caused by your negligence or assumed liability is apt to result in formal notification from your insurance carrier that your limits may be inadequate if you carry something less. This alerts you to possible involvement of an Excess policy if you have one, your personal or corporate assets if you do not.
Circumstances should dictate the extent to which you need become alarmed at that point, most particularly the merits of the claimed injury or damage and true extent of loss. It is not at all unusual to encounter an outlandish initial demand where the case is actually worth far less in true settlement value, of course.
Again, prompt consultation with your insurance representative and attorney is recommended so that both can help determine the real likelihood of liability beyond policy limits. Both should guard against any temptation on the part of the insurance carrier to tender their limit and run. Most cases are settled well within the policy limits provided, but it is old hat and frankly ridiculous economy for any individual or corporation to be caught short of decent liability limits in an era when high limit primary and personal or business Umbrella Excess Liability policies are available to everyone at nominal cost.
The real solution, then, is to carry limits adequate to protect against the catastrophe, if and when it ever comes. Ask and you will probably be surprised to learn how little more that extra hundred thousand of coverage will cost.