Husch Blackwell LLP

Insurance Basics
Bruce Moothart
bruce.moothart@huschblackwell.com
David Schatz
david.schatz@huschblackwell.com

1

Introduction and Summary
Types of insurance and application
Common issues with insurance
Roles of the insurance broker and lawyer
2
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
3
Types of Insurance
The Big Four

Commercial general liability (CGL)
Workers Compensation (WC)/Employers
Liability (EL)
Property
Business auto


4
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
5
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
6
Types of Insurance
Property

Real property
Personal property
Business interruption
You may need a specialty policy for certain
types of property
7
Types of Insurance
Business Auto Liability (BAL)

Provides coverage for categories of vehicles
or scheduled vehicles
Works in conjunction with your CGL
8
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

9
Types of Insurance
Other types of liability insurance

Data Protection Liability Insurance (Cyber
Insurance)
Fiduciary Liability (FL)
Errors and Omissions Insurance (E&O)

10
Types of Insurance
Other types of liability insurance

Internet Liability Insurance (ILI)
Employer Practices Liability Insurance (EPL)
Builders Risk
Environmental and Pollution Liability Insurance
Surety Bonds (not insurance for the purchaser)


11
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

12
Types of Insurance
Transactional insurance

Life insurance (key person insurance)
13
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).
14
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 (1
st
Cir. 1993)




15
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)

16
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
17
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 insureds 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

18
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)

19
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
20
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 (Tuterris, 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

21
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

22
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 non-
covered 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
23
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))

24
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 three-
way relationship
between the insurer,
insured, and the
lawyer


Insured
Lawyer
Insurer
25
Common Issues
The Tri-Partite relationship
http://www.youtube.com/user/TheDHXTRA

26
Common Issues
The Tri-partite relationship

Lawyers 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 counsels only client is the
insured. In re A.J. Robins Co., Inc., 880 F.2d 709 (4th
Cir. 1989)
Affects reporting


27
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



28
Common Issues
Duty of Insured

All policies contain cooperation clauses that
require the insured to assist in the defense of
the case
29
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
30
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



31
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

32
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
Owners Ins. Co. v. Ennulat, 231 S.W.3d 297,
305 (Mo.App. E.D. 2007))
Frees insured to act in its own interest

33
Common Issues
Additional Conflicts of Interest

Claims in excess of policy limits
Uncovered punitive damages
Facts discovered that bear on coverage
34
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=rOuAU3nn-
UM

35
Common Issues
Settlement without insureds 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
36
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
37
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
38
Common Issues
Other available insurance

Should not impact your insurers obligations to
you
39
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
40
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
41
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
42
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)
43
Questions?

44