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The risk in buying any insurance coverage for a company is that once something happens, your claim will be denied. The real problem stems with mystery behind denials in the first place. When buying adequate policies, the reasons for denial are unclear and rarely mentioned in any detail. This is the reason why you should ask now. In order to try to avoid this unexpected misfortune, ask what the reasons are.
Why will I be denied a claim if I sign up for your insurance policy? When you ask this of the insurance rep, you will be given a blank look. At this point ask the agent or underwriter what were reasons why his other companies may have been denied since he has been selling insurance. Ask this rep what those other firms of his did wrong prior to the claims and what caused the ultimate insurance company denials in those cases. You want to know why your claim might be denied in the future.
Tell the rep you cannot decide until you get this list of denial reasons. Ask to see if you can get a list of all of the reasons why this may happen and see what happens. It will not hurt to inquire upfront. You have leverage before you give them a check so now is the time to ask about the unmentioned holes in your policies.
You have a right to know why you will be turned down. Your firm pays a lot of money to insure against unknown risks so you have a right to know what will never be covered. Where are the exposures hidden in the coverage? Can those exclusions be covered with additional insurance? If not, what measures can be taken within the company to avoid losses which will be ultimately denied per these exceptions? One way to fill the holes is to buy more insurance and increase deductibles at the same time.
What you can do ahead of time to avoid denial of claims:
- Review vehicles and drivers. If risk lies in your vehicles coverage, train your drivers. If you must, replace current questionable drivers with vetted candidates. Watch all of the company owned vehicles and track accidents. Get the bad drivers out of your autos and trucks. Hire good drivers. Check driving records before you hire people that will be driving a company vehicle. Provide more training for those with the most accidents and if that does not work, get them out of your vehicles and hire other qualified drivers with cleaner records.
- Tighten quality control procedures. If your insurance company mentions risk in product liability claims, tighten up your quality control procedures. Ensure your manufacturing internal controls are in place. Review the possibility of denied claims with those who may be at fault in the future and talk to them now concerning their role in reducing this risk. Demand the insurance company send their agents to check and review your company policies, procedures and paper trail.
- Review legal documents – both sides. Your legal documents may need to be reviewed legally to ensure you are covered by protective language in the standard documents you and your customers and vendors sign. If you have not had the terms reviewed recently on your sales acknowledgements (orders from your customers) or your purchase orders (orders you issue to your vendors), have your lawyers or legal department review this language now to increase your chances of success if you are forced to go to court. This may be especially important if you have more sales outside your state or outside the country.
- Review safety. Have safety checks performed on your firm and its facilities by companies referred to you directly by your insurance companies. Ask your insurance company for a firm that will do a thorough check of the risks associated with your facility, the type of equipment you own, type of materials or chemicals used in your process, proximity to other dangerous facilities or businesses in the neighborhood and review all safety procedures and determine the need for any additional training.
- Review coverage and deductibles. Take a look again at your total coverage and your current deductibles. Maybe the tradeoff is worth pursuing for changing a $5,000 deductible carrying $500,000 coverage to a $50,000 deductible and $2,000,000 coverage. Although $50,000 may be a little difficult to cover in the future for the firm, the idea of insurance is to limit and eliminate the economic consequences of catastrophic events. At least the company may be able to get through that future devastating claim and continue existing. It may be worth boosting these deductibles and simultaneously increasing coverage limits to add more coverage comfort for the company.
