Insurance Basics
Bruce Moothart
bruce.moothart@huschblackwell.com
David Schatz
david.schatz@huschblackwell.com
© Husch Blackwell LLP
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Introduction and Summary
 Types of insurance and application
 Common issues with insurance
 Roles of the insurance broker and lawyer
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Types of Insurance
 Is there insurance for everything?
– Virtually all conduct can be covered, but there
can be gaps
• Example: Co-employees: Standard insurance
forms generally includes employees while
operating within the course and scope of their
employment, unless the injured individual is also
an employee injured during the course and scope
of employment
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Types of Insurance
 The Big Four
– Commercial general liability (CGL)
– Workers Compensation (WC)/Employers
Liability (EL)
– Property
– Business auto
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Types of Insurance
 Commercial general liability (CGL)
– Provides coverage for bodily injury or property
damage caused by an accident
– Also provides coverage for personal injury for
advertising injury
– Does not cover contractual claims
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Types of Insurance
 Workers’ Compensation/Employers
Liability (WL/EL)
– Required if five or more employees/one or
more employees if in construction industry
– Possible to self insure
– Penalties if you do not carry it
– EL is stop gap insurance
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Types of Insurance
 Property
– Real property
– Personal property
– Business interruption
– You may need a specialty policy for certain
types of property
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Types of Insurance
 Business Auto Liability (BAL)
– Provides coverage for categories of vehicles
or scheduled vehicles
– Works in conjunction with your CGL
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Types of Insurance
 Other types of liability insurance
– Directors and Officers Insurance (D&O )
• Three types of potential coverage
• Includes intentional acts
• Available for the entity
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Types of Insurance
 Other types of liability insurance
– Data Protection Liability Insurance (Cyber
Insurance)
– Fiduciary Liability (FL)
– Errors and Omissions Insurance (E&O)
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Types of Insurance
 Other types of liability insurance
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–
–
–
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Internet Liability Insurance (ILI)
Employer Practices Liability Insurance (EPL)
Builder’s Risk
Environmental and Pollution Liability Insurance
Surety Bonds (not insurance for the purchaser)
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Types of Insurance
 Transactional insurance
– Representations and Warranties (R&W)
• Protects parties from inaccuracies in
representations and warranties
– Litigation Buyout Insurance
• Insurer assumes risk of a lawsuit or group of
claims
• Involves known loss
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Types of Insurance
 Transactional insurance
– Life insurance (key person insurance)
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Types of Insurance
 Excess and Umbrella policies
– Excess Policies
• Provide additional limits of coverage
• By reference contain the same terms of coverage
as the underlying policy and follow form. See
American Home Ass. Co. v. Republic Ins. Co., 984
F.2d 76 (2nd Cir. 1993).
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Types of Insurance
 Excess and Umbrella policies
– Umbrella policies
• Are broader than the underlying policies and may
provide coverage not present in the underlying
policy. See Commercial Union Ins. V. Walbrook
Ins. Co., 7 F.3d 1047 (1st Cir. 1993)
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Types of Insurance
 Excess and Umbrella policies
– Do not drop-down for insolvencies
• The determination is made by a review of the
policy language. The majority of courts have held
that excess carriers do not have to “drop down” in
the event the underlying carrier becomes insolvent.
Fred Weber, Inc. v. Granite State Ins. Co., 829
S.W.2d 589 (Mo. Ct. App. 1992)
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Types of Insurance
 Self Insured Retention (SIR) versus
Deductible
– SIR: A dollar amount specified in the insurance policy
that must be paid before the insurance policy will
respond to a loss
• Usually employed by insureds who have frequent
but small losses
• TPA may be required
– Deductible: A portion of a covered loss that is not
paid by the insurer
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Types of Insurance
 Self Insured Retention versus Deductible
– Difference between an SIR and deductible is that a deductible is
a portion of a covered loss for which the insured must reimburse
the insurer, whereas an SIR is a portion of a risk that that the
insured retains for itself
– Choice of defense counsel: Typically an insured has the
obligation to defend the suit with an SIR
– Insolvency/Dropping Down: The insured’s payment of a
deductible is a condition subsequent. Therefore, where the
insured is in bankruptcy, the insurer must pay the entire amount,
and then seek reimbursement from the insured. Payment of an
SIR, on the other hand, is a condition precedent. The insurer is
not required to “drop down” and pay the SIR
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Types of Insurance
 Claims made versus Occurrence based
policies
 CGL policies are generally “occurrence-based”
policies that cover injuries that take place during
the policy period
 “Claims made” policies cover liability for bodily
injury or property damage for claims asserted
during the policy period (e.g. D&O Policies)
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Common Issues
 Why do so many issues arise with
insurance coverage?
– Contracts are not negotiated
– Form language that must address an
unlimited number of circumstances
– State law varies on contractual outcome and
extra-contractual claims
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Common Issues
 Notice
– Specific notice provisions vary from policy to policy, but the basic
purpose is to allow enable insurers to adequately investigate and
respond to claims
– Majority rule is late notice does not relieve the insurer of its
obligations unless the insurer is prejudiced as a result of the
delay (Tuterri’s, Inc. v. Hartford Steam Boiler Inspection & Ins.
Co., 984 S.W.2d 266, 269 (Mo. Ct. App. 1995))
• Practical Impact: Insured may not be able to obtain
reimbursement for defense costs expended through the time
the insurer received notice of the claim
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Common Issues
 Notice
– It is generally held that independent insurance
brokers are considered agents of the insureds whose
coverages they place (United Fire & Ca. Ins. Co. v.
Garvey, 419 F.3d 743, (8th Cir. (Mo.) 2005))
– Brokers may be held liable when they fail to timely
communicate notice of a claim to insurers (See
Stevenson Ins. Assocs., Inc. v. Cohen, 228 So.2d
118, 210 (Fla. Dist. Ct. App. 1969))
– Best practice is to obtain written copy of notice
provided by broker to insurance carrier
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Common Issues
 Obligation to defend versus indemnity
– Duty to defend is broad: Insurers have a duty to defend claims
where the facts “potentially” state a claim within coverage of the
policy (Steve Spicer Motors, Inc. v. Federal Mutual Ins. Co., 758
S.W.2d 191, 193 (Mo.App. S.D. 1988))
– Generally includes the duty to defend both covered and noncovered claims, but states vary on the issue (See Carpenter,
Weir & Myers v. St. Paul Fire and Marine Ins. Co., 1998 WL
976309, *12 (D.Kan. October 30, 1998))
– Insurer more likely to indemnify if defending
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Common Issues
 Reimbursement of Defense Costs by Insurer for
a Non-Covered Claim
– Majority rule is that an insurer is entitled to recoup its defense
fees if it reserved its right to do so and a subsequent
determination is made that the insurer had no duty to defend
– The minority rule (and more recent case law) suggests that
absent a specific provision in the policy requiring reimbursement,
the insurer is not entitled to recover it defense costs from the
insured (See Westchester Fire Ins. Co. v. Wallerich, 563 F.3d
707, 718 (8th Cir. 2009)(applying Minnesota law))
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Common Issues
 The Tri-partite
relationship
– In the typical
insurance defense
scenario, the insurer
retains a lawyer to
represent an insured,
which sets up a threeway relationship
between the insurer,
insured, and the
lawyer
Insurer
Insured
Lawyer
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Common Issues
 The Tri-Partite relationship
– http://www.youtube.com/user/TheDHXTRA
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Common Issues
 The Tri-partite relationship
– Lawyer’s primary obligation of duty or loyalty is to the
insured, but owes some obligation to the insurer, and
may be sued by the insurer for malpractice. Nevada
Yellow Cab Corp. v. Eighth Judicial District Court ex
rel. County of Clark, 152 P.3d 737 (Nev. 2007).
– In other states defense counsel’s only client is the
insured. In re A.J. Robins Co., Inc., 880 F.2d 709 (4th
Cir. 1989)
– Affects reporting
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Common Issues
 Duty of Insurer
– The insurer must sacrifice its interests in favor
of the insured
– The insurer must provide a timely and
complete response
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Common Issues
 Duty of Insured
– All policies contain cooperation clauses that
require the insured to assist in the defense of
the case
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Common Issues
 Limitations on CGL coverage
– Does not apply to your work or product
• Not a guarantee of your work
– You may need Products/Completed Operations
coverage
– Only applies to accidents, not intentional conduct
– Only applies to bodily injury, property damage or
personal injury
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Common Issues
 Limitations on CGL coverage
– Does not apply to employment claims
– Does not cover recalls
– Only covers named, other or additional
insureds
– Does not apply to environmental claims
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Common Issues
 Reservation of Rights Letter
– A declaration by the insurer that it will
defend the action, but reserves the
right to contest the available coverage
for all or part of the claim
– Creates a conflict of interest
– Commonly issued
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Common Issues
 Reservation of Rights Letter
– Insurer may lose the ability to control the
defense (Ballmer v. Ballmer, 923 S.W.2d 365,
370 (Mo.App. W.D. 1996))
– Treated the same as a refusal to defend (Auto
Owner’s Ins. Co. v. Ennulat, 231 S.W.3d 297,
305 (Mo.App. E.D. 2007))
– Frees insured to act in its own interest
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Common Issues
 Additional Conflicts of Interest
– Claims in excess of policy limits
– Uncovered punitive damages
– Facts discovered that bear on coverage
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Common Issues
 Why insurers are concerned about
conflicts
– If the conduct is done in bad faith, it exposes the
insurer to damages beyond policy limits and punitive
damages
– Cannot challenge judgment
– Juries do not like insurance carriers
– The adjuster may not make the best witness
 http://www.youtube.com/watch?v=rOuAU3nnUM
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Common Issues
 Settlement without insured’s consent
– Most often a med mal issue: Rogers v.
Robson, Masters, Ryan, Brumund and Belom,
407 N.E.2d 47 (Ill. 1980)(physican feared loss
of reputation if malpractice claim against him
was settled)
– Most policies give the insurer the right to
settle
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Common Issues
 Insurance requirements versus indemnity
obligations
– Different obligations
– Duty to indemnify can exist without available
insurance
– Interplay between policy and agreement can
affect obligations and priority of coverage
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Common Issues
 Additional insured status
– Should review endorsements
– Certificates of insurance do not create
coverage
– Trend is that insurer will not agree to provide
notice of cancellation
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Common Issues
 Other available insurance
– Should not impact your insurer’s obligations to
you
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Roles of the Broker and Lawyer
 Broker is generally agent of the insured
– Best knowledge of available options
– May act as an advocate for the insured
 Lawyer can provide insight on scope of
coverage
– No relationship with insurers
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Tips
 Submit claims immediately and to all
potential insurers
 Be proactive in providing support for your
claim
 Be on the lookout for coverage issues and
conflicts of interest
 Maintain copies of current and prior
policies
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Tips
 Insist that the insurer pay undisputed
portions of a claim
 Request endorsements in addition to
certificates of insurance
 Pay attention to insurance requirements
and indemnity provisions
 If you are bringing suit, consider what
claims may be covered
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Tips
 Know your acronyms:
– CGL, D&O, FL, EPL, E&O
– EUO (Examination under oath)
– DOL (Date of loss)
– POL (Proof of loss)
– SOL (What happens when your policy lapses
the day before a loss)
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Questions?
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