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 donot go it alone. Instead they face it with an insurancecompany.

Dealing with insurers in such ticklish and high-stakes cases canbe frustrating, so let's begin with a reality check aboutinsurance:

All coverage contains exclusions. Insurancedoes not pay for everything. Liability policies require a showingof liability in order to pay. There is no duty to pay justbecause it is a “bet the company” case.

Insurers will balk at paying policy limits if liability has notbeen demonstrated to a compelling, convincing degree. While aninsurer may weigh a policyholder's liability assessment and theviews of other insurers, it will likely reserve the right to makean independent liability evaluation.

Insurers get “tagged” enough to understand and analyzelitigation risk. The “knock” on some insurers is that they oftensettle too quickly, perhaps in fear of trying certain cases. Badexperiences deter them from being riverboat gamblers or rolling thedice in front of juries. Therefore, liability coverage is far froma no-fault policy.

Insurance policies are not ATM machines orcredit lines from which to draw. Is it really a “bet the company”case, or is the drive for settlement stemming from one of thefollowing factors? Is the risk manager's business decision to buylow limits leaving the company under-insured, or are there“business reasons” unrelated to legal liability at play? Otherfactors might include a risk manager facing allegations or countsnot covered by insurance or management's weariness about the casethat it wishes would go away. Battling insurers may tempt somepolicyholders to sue.

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:

• Transaction costs to pursue a coverage or badfaith action. Now there are two drains on legal costs—one fromdefending the underlying claim; the other from pursuing theinsurance company.
• Headaches of fighting a two-front war: oneagainst the plaintiffs, and the other against the insurer. The timesuck now ratchets up when you are litigating the underlying claimand coverage. This is a huge distraction.
• Risk of losing. Even after investing the time,money, and litigating, there remains a chance that the risk managermight 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 notsee things your way.
• Burning bridges. Going nuclear and suing couldcause you to burn bridges with insurers, who may then tag you as a“problematic insured.” If you have a good, long-term relationshipwith an insurer that is a reliable source of capacity, then are youwilling to risk that?

How Risk Managers Can MaximizeCoverage

The following guidelines can assist you in making decisionsabout a “bet the company” case:

1. Do not select a particular quote because it is thecheapest option. As in other realms, in insurance you getwhat you pay for. Sometimes things are cheaper for a reason. Onereason for the “cheap quote” on insurance may be lousy claimservice. Perhaps you cannot command adjusters' attention becausecost-cutting has left them so under-staffed that they are primarilyconsumed with putting out fires. Maybe they can give cheap quotesbecause they contest coverage on flimsy grounds. Or, they dump yourfile on a newbie who hasn't the foggiest idea about how to manage aserious claim. If your claim is mishandled by a clueless insurancecompany, then no one will pat you on the back and say, “At leastyou got a great deal on that quote.”

2. Include claims handling and philosophy in insurancedue diligence. Too many insurance-buying decisions areprice-driven and are made based on “the cheapest quote.” That is arecipe for disaster. Companies sometimes pick their insurance basedon price, only to then act surprised when they do not receiveplatinum claim service.

Some due diligence tips include talking to the claims people, asthey will actually be handling your cases; asking about their claimphilosophy; supplying hypotheticals and learning about theirapproach in dealing with them; and checking out their procedures,service standards, and chemistry. If you take away nothing elsefrom this discussion, then let it be the tip that insurance-buyingdecisions do not hinge upon price alone. 

3. Make the case for settlement that is basedon liability.This will be most persuasive to the adjuster. Perhaps the liabilitypicture has degraded, or there are new facts about the case. Hasone of these events transpired?

• A key defense expert “craters” or is unavailable.
• You lose a vital Daubert ruling.
• A bad document surfaces.
• A high-octane plaintiff's firm has just signed on.

These are examples of compelling factors to use in making a casefor liability—and policy limits—on the merits.

4. Over-communicate with the carrier. Avoid the“mushroom treatment,” where you keep the insurer in the dark andcover it with “bad stuff.” If you see the insurer as a glorifiedATM machine, then you will encounter problems. Issues will arise ifyou treat the company like a potted plant—expecting it to standquietly in the corner and write checks when you signal formoney.  

5. Communicate in various settings, and documentconversations. Keep insurers in the loop. Communicate in writing, but also, pick up the phone. Meetface-to-face periodically. Cultivate multiplecommunication channels with the insurance carrier. Keep meticulousrecords of the dates and content of the communication in case thereis ever a dispute. 

6. Do not reflexively view insurers as the enemy. Just like the flattest pancake has twosides, the insurance company has a definite perspective. Do notpaint all insurers with the same broad brush. If you approach themcollaboratively, then it is more likely that you will be able tomaximize insurance coverage. 

What matters is not so much whether it is a “bet the company”case but whether it is a case of liability. If it is a case ofliability, then, by all means, settle. If liability is weak orcontested, then defend. Insurance policies typically state: “Wewill pay those sums for which the insured is legally liable …” Theydo not generally read, “We will pay those sums which might be atrisk in a bet-the-company case …” The distinction is key. Thus,follow these tips, and the risk manager's “marriage” with insurersmay be more like eHarmony and less like, well, the ill-fated Jonand Kate.