Practical Pointers for Protecting Your Insurance Rights in the Wake of Hurricane Sandy

This post was written by Paul E. Breene, Douglas E. Cameron, James M. Davis, John N. Ellison, Ann V. Kramer, Richard P. Lewis, Matthew J. Schlesinger, John D. Shugrue and Gary S. Thompson.

Hurricane Sandy left a swath of major damage and destruction over a large area of the Northeastern United States. Commercial policyholders will have major claims for property damage, loss of business income, and extra expenses. History teaches that the insurers will resist or seek to limit payments. Policyholders are advised to be proactive in claiming their rights under policies. Resolution is achievable, but usually with hard work and patience. Here is a list of some practical pointers that most commercial policyholders should consider:

  • First, Protect and Preserve the Assets. Emergency and temporary repairs should be documented and, if practical, reviewed with the insurer in real time.
  • Attend to Notice and Timing. Make sure all notices have been issued to all insurers that could be called to pay. If the policy requires a Proof of Loss within 30 days, obtain a written extension. Spot any other time-related requirements.
  • Reserve All Rights. Reserve all rights and contentions. Do not allow the insurer to classify or characterize your claim before you have had a full opportunity to review everything. If you let them, the insurers will dictate your claim to you.
  • Form a Team. Form a team of all personnel involved in the claim and hold regular team calls or meetings. Review the policy with counsel; remember that all exclusions and limitations must be construed strictly and narrowly. The insurer will have counsel, adjusters, consultants and accountants. Consider leveling the playing field with your own team. Many policies cover some of these claim-preparation costs.
  • Be Aware of Deductibles and Sublimits Before Agreeing on Causation. Review causation and proceed carefully before taking a position. Coverage, sublimits, and deductibles can be affected by determinations as to whether the damage was caused by a certain covered peril.
  • Look for Other Policies. Some properties are insured under other policies, like a “deductible buy-down” policy or a National Flood Insurance Program policy. Limits under these policies may offset the deductible that otherwise applies.
  • Communicate. Develop relationships at all levels of your team with their respective insurer-side counterparts. Keep communication open and civil.
  • Documentation and Accounting. Keep exact and tedious records of all communications, meetings, and exchanges. Keep submitting documentation. Set up accounting codes or other processes to track all invoices, costs, and expenses of any kind related to the claim, by various categories.
  • Attempt to Involve Insurers Before Repairs. Attempt to obtain insurer approvals before repair and replacement of property. Be aware of insurers’ rights to salvage property. If insurers are silent or non-responsive in the face of repair decisions – as is often the case – document it for the record. They should not be allowed to second-guess the decision after the fact.
  • Replacement Cost New Means Replacement Cost New. Most policies value property on an RCV basis. By definition, what is old is being replaced with something new. This is a natural “upgrade.” Be wary of insurer pronouncements that the damaged property had “preexisting” defects or wear and tear.
  • Do Not Forget Code Upgrades. Most policies cover code upgrades. Be aware of the underlying codes and whether they will increase repair costs. Capture all such costs in your claim.
  • Prepare the Business Interruption and Extra Expense Claim Carefully. Insurers will challenge attempts to recognize net profit for an interruption period. Utilize experts who can draw on market data to prove the “BI” analysis.
  • Review Other Agreements That Can Affect the Claim. There may be agreements that can impact a hotel claim – a loan agreement, a ground or space lease, a property management agreement, a condominium association agreement, etc.
  • Work Toward Resolution. All claims should settle. If yours does not, make sure it is only because the insurer is being unreasonable and that the record makes this obvious – so that if you do end up in litigation, it will be apparent that you gave the insurer every opportunity to adjust the claim based on the facts, and that the insurer chose to be aggressive and unreasonable.
  • Draw on the Business Side. Insurance is expensive. You should expect fair treatment on the claims side. Business contacts, such as between risk managers and brokers, should be explored. If the insurer does not live up to its end of the contract, consider renewal with a different insurer.

Reed Smith’s Insurance Recovery Group has unmatched experience in advising and assisting policyholders in all aspects of first-party property damage and business interruption insurance claims. Our experience is especially unparalleled in hurricane insurance claims.
 

Government Investigations: Don't Forget About D&O Insurance When That Subpoena Arrives

This post was written by Mark S. Hersh and Paul E. Breene.

Government investigations can be both time-consuming and hugely expensive. Earlier this year, the U.S. Department of Justice and the U.S. Department of Health and Human Services announced that its 2011 health care fraud prevention and enforcement efforts resulted in record-breaking recoveries totaling more than $4 billion -- the largest sum ever recovered in a single year. With health care fraud and abuse as a top priority for the current administration, life sciences and health care organizations would benefit from reviewing their insurance policies to ensure they are protected in the event of an investigation.

When an investigation is commenced by a federal or state government entity, a company should have two standard operating procedures: first, hire experienced counsel to respond to the investigation or subpoena; and second, determine whether insurance coverage may be available to pay for what are frequently significant defense costs that may be incurred in connection with the investigation. Securing insurance coverage for subpoenas and informal investigations, both civil and criminal, can be an arduous process, but policyholders who plan ahead and know the pitfalls can give themselves a significant advantage by having coverage to pay for the defense and cost of responding to such an investigation. Failing to secure coverage for an investigation can mean that there will be no coverage if the investigation leads to lawsuits or other legal proceedings.

To learn more about how your life sciences or health care company can secure coverage to protect against costly government investigations, read the full alert.

Stryker Bests XL in Long-Running Insurance Battle

This post was written by Ann V. Kramer.

Last week, the Sixth Circuit ruled largely in favor of Stryker Corporation in its effort to secure insurance coverage from XL Insurance America. Since 2001, Stryker has been battling XL for reimbursement of its defense and indemnity costs arising from sales of expired Uni-Knees, an artificial knee medical device. Stryker had accidentally permitted sales of the expired products from its warehouse until it discovered the error. Uni-Knees were developed by Howmedica, a Pfizer subsidiary that Stryker bought in 1998.

Although a five-year expiration date applicable to the Uni-Knee among others was put in place in the mid-1990’s and Stryker was aware of it, the Pfizer-designed program to prevent sales of expired implants failed to include the Uni-Knee. Styker did not realize that it was the source of such sales until mid-2000. XL, which sold Stryker a first-layer policy which pays defense costs in addition to the policy’s $15 million limit, contended that it owed no coverage because Stryker knew about problems with expired knees before XL’s coverage began in January 2000.

The Sixth Circuit rejected XL’s argument as had the lower court, saying it went too far:

Under XL’s theory, if an insured knows that there is some future scenario under which a product would become defective via expiration, even if it is completely out of the insured’s hands, then there is no coverage.

* * *

It would also mean that any medical product with an expiration date, such as most pharmaceuticals, would be uninsurable …, since there is always the chance that the expiration date would not be heeded.

Slip op at p.8. In addition, the appeals court sustained Stryker’s right to 12% pre-judgment interest under Michigan law, though not for as long as Stryker had hoped.

Worse for Stryker, the appeals court held that XL was within its rights to settle Pfizer’s later-in-time claims against Stryker (seeking indemnity under the acquisition agreement), thereby reducing the limits available to Stryker for its own claims and XL’s defense obligations as well. Yet, even there, the appeals court pushed back against XL, finding that Pfizer’s defense costs in defending claims from Uni-Knee implant claimants were defense costs to be paid in addition to limits. This part of the ruling is unlikely to be of much use to policyholders since the wording of the policy’s Insured Contract coverage was unique and probably no longer available.

Cross-Complaints and Counterclaims May Trigger A Right To Insurance Recovery

Lawyers representing clients as plaintiffs in litigation often overlook the fact that a cross-complaint or counterclaim may give rise to an obligation by the client’s liability insurer to provide a defense. A recent decision in favor of Hewlett-Packard, awarding it $51 million, serves as a reminder that insurance coverage must be examined when a cross-complaint or counterclaim is filed.

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Who Pays the Bill for Asbestos Claims: Recent Developments in Asbestos-Related Disease Liability in the UK

This post was written by Darren Smith, Julia Dodds, and Claire Hamm.

The UK has an estimated 3,000 deaths per year from mesothelioma, the lung cancer caused by inhalation of asbestos fibres. This rate of incidence shows no signs of slackening, a result of the historic exposure of the UK workforce to asbestos, and is not expected to peak until 2018. With the average award of damages for mesothelioma currently around £150,000 ($300,000), defendants and their insurers are already paying out close to $1 billion a year to settle mesothelioma claims alone; and to this must be added the cost of claims for non-fatal asbestos-related diseases.

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