Insurers get “tagged” enough to understand and analyze litigation risk. The “knock” on some insurers is that they often settle too quickly, perhaps in fear of trying certain cases. Bad experiences deter them from being riverboat gamblers or rolling the dice in front of juries. Therefore, liability coverage is far from a no-fault policy.

Insurance policies are not ATM machines or credit lines from which to draw. Is it really a “bet the company” case, or is the drive for settlement stemming from one of the following factors? Is the risk manager's business decision to buy low limits leaving the company under-insured, or are there “business reasons” unrelated to legal liability at play? Other factors might include a risk manager facing allegations or counts not covered by insurance or management's weariness about the case that it wishes would go away. Battling insurers may tempt some policyholders 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 bad faith action. Now there are two drains on legal costs—one from defending the underlying claim; the other from pursuing the insurance company.
• Headaches of fighting a two-front war: one against the plaintiffs, and the other against the insurer. The time suck now ratchets up when you are litigating the underlying claim and coverage. This is a huge distraction.
• Risk of losing. Even after investing the time, money, and litigating, there remains a chance that the risk manager might 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 not see things your way.
• Burning bridges. Going nuclear and suing could cause you to burn bridges with insurers, who may then tag you as a “problematic insured.” If you have a good, long-term relationship with an insurer that is a reliable source of capacity, then are you willing to risk that?

How Risk Managers Can Maximize Coverage

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

1. Do not select a particular quote because it is the cheapest option. As in other realms, in insurance you get what you pay for. Sometimes things are cheaper for a reason. One reason for the “cheap quote” on insurance may be lousy claim service. Perhaps you cannot command adjusters' attention because cost-cutting has left them so under-staffed that they are primarily consumed with putting out fires. Maybe they can give cheap quotes because they contest coverage on flimsy grounds. Or, they dump your file on a newbie who hasn't the foggiest idea about how to manage a serious claim. If your claim is mishandled by a clueless insurance company, then no one will pat you on the back and say, “At least you got a great deal on that quote.”

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

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

3. Make the case for settlement that is based on liability. This will be most persuasive to the adjuster. Perhaps the liability picture has degraded, or there are new facts about the case. Has one 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 case for 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 and cover it with “bad stuff.” If you see the insurer as a glorified ATM machine, then you will encounter problems. Issues will arise if you treat the company like a potted plant—expecting it to stand quietly in the corner and write checks when you signal for money.  

5. Communicate in various settings, and document conversations. Keep insurers in the loop. Communicate in writing, but also, pick up the phone. Meet face-to-face periodically. Cultivate multiple communication channels with the insurance carrier. Keep meticulous records of the dates and content of the communication in case there is ever a dispute. 

6. Do not reflexively view insurers as the enemy. Just like the flattest pancake has two sides, the insurance company has a definite perspective. Do not paint all insurers with the same broad brush. If you approach them collaboratively, then it is more likely that you will be able to maximize 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 of liability, then, by all means, settle. If liability is weak or contested, then defend. Insurance policies typically state: “We will pay those sums for which the insured is legally liable …” They do not generally read, “We will pay those sums which might be at risk in a bet-the-company case …” The distinction is key. Thus, follow these tips, and the risk manager's “marriage” with insurers may be more like eHarmony and less like, well, the ill-fated Jon and Kate.