As insurance recovery attorneys, we spend a large chunk of our time fighting insurance companies in court, and another large chunk negotiating claim settlements. Obviously we feel strongly that litigation is all too often the only viable course for a policyholder pursuing the coverage they've paid for.

We also recognize, however, that litigation is a last resort — and more often than not, avoidable on fair terms. Policyholders can do much, throughout the claim process, to expedite and maximize recovery without resorting to litigation.

Maximizing recovery requires an understanding of the economics of insurance. Insurance companies make money by minimizing their loss ratio (the ratio of premiums to claims payouts) and maximizing float (the time lag between premium collection and claims payout). Effective claims pursuit requires policyholders to exert time pressure, minimizing float, and to provide copious information promptly, facilitating the insurance company's own reinsurance claim and thus boosting its loss ratio.

Here we outline steps that will both keep the claim process moving and provide the insurance company with the information it needs to say “yes” to coverage.

Give Notice Early, Broadly and Often

Some insurance policies require the policyholder to give notice of a claim within a fixed period, and as a general matter, prompt notice should be given under every policy. When a claim arises, give notice as soon as possible under as many insurance policies as may be applicable. Supplement that notice as you develop more information about the claim.

Giving notice quickly will allow your insurance company to give notice to its reinsurer quickly. Keep in mind that a notice of occurrence is not a demand for payment and so does not impact the insurance company's loss ratio. A notice of occurrence does allow the insurance company to conduct an investigation of the loss and thus avoid prejudice. Later you can decide whether and when to make a demand for payment.

Gather All Information and Document Everything

The duty to cooperate means keeping and turning over pertinent documents and doing so as soon as possible. Again, prejudice rules generally apply, but doing it right may help eliminate the argument. When a loss occurs, therefore, gather every scrap of information pertaining to it and err on the side of providing more documentation than you think is necessary or even reasonable. This will help your insurance company, which may be trying to satisfy the demands of its reinsurer (and is required even when this is not the case). If the requests for information are unreasonable, write to your insurance company and ask what it really needs to confirm coverage.

Keep the Insurance Company On Board as You Negotiate Settlement

Insurance companies often deny coverage on grounds that the policyholder failed to cooperate with their investigations of a claim or deprived them of the right to “associate” in the defense or settlement of suits. These defenses generally allege failure by the policyholder to provide necessary information.

To avoid this pitfall, invite the insurance companies to meet periodically to discuss developments in the suits, and offer to make all nonprivileged documents available for inspection. Carefully document these efforts in letters to the insurance companies to create a strong record of cooperation.

The policyholder can forestall the argument that it deprived its insurance companies of a right to associate in the defense by inviting them to offer their views as to how the cases should be defended. Chances are, the response will be “Act like a reasonable uninsured company would.” This gives the policyholder the freedom to proceed on a rational basis.

Even if an insurance company refused to participate in the settlement process and never committed to providing coverage, it may argue it had the right to accept or reject a settlement. This potential problem can be dealt with by conditioning any settlement on insurance company approval, while reserving the policyholder's right to waive that condition if insurance company consent is not given.

If the plaintiffs will not accept a conditional settlement, the agreement should not be consummated without first presenting it to the insurance companies. Failure to give the insurance company a reasonable opportunity to consider a proposed settlement can result in the forfeiture of coverage.

Be Assertive — and Cooperative

Throughout all these stages of claim handling, providing copious documentation and clear, forceful requests for action can be seen as a form of tough love. The policyholder should simultaneously be closing off avenues for claims denial or delay while aiding the insurance company's procedural needs — and, ideally, its reinsurance claims efforts. Exerting pressure, while cooperating with legitimate demands, is the best formula for avoiding litigation.

About the Authors:

Robert M. Horkovich (rhorkovich@andersonkill.com) is the Managing Partner of Anderson Kill P.C., a national law firm. He is a trial lawyer with substantial experience in trying complex insurance coverage actions on behalf of corporate policyholders and has obtained over $5 billion in settlements and judgments from insurance companies for his clients over the past decade.

Finley T. Harckham (fharckham@andersonkill.com) is a Shareholder in the firm's New York office. He regularly represents corporate policyholders in insurance coverage matters and has successfully litigated, arbitrated and settled hundreds of complex coverage claims, including those involving property loss, business interruption, directors and officers liability, construction, professional liability and general liability claims.

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Tough Love Gets Claims Paid

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