Insights
Publications

5 Insurance Tips for Emerging Companies

2/2/2016 Articles

This article was published in Risk Management.

When a new company moves to secure funding and formalize operations, insurance is often an afterthought. But with a bit of effort, emerging companies can obtain strong insurance protection, maximize their existing coverage, and make themselves more attractive to future investors and other partners. Emerging companies should focus in particular on commercial general liability, data privacy and cyber liability, errors and omissions liability, directors’ and officers’ liability (D&O) and, depending on the number of employees, fiduciary liability and employment practices liability policies. An effective risk management strategy will also depend on strong external support from insurance brokers and counsel.

The following are five best practices for getting started on an insurance program:

1. Purchase strong insurance products that make sense for your company. Pricing for insurance can vary widely, and it is often true that “you get what you pay for.” At the same time, many policies will contain bells and whistles that appear attractive, but from which you will never get much value. Closely study the quotes you are offered, and make sure you understand what you are purchasing, what the policy will cover and what it will not. Ask your broker and/or outside insurance coverage counsel about specific insurers’ reputations for claims handling practices.

2. Take insurance applications seriously, particularly for D&O policies. Insurance applications are important legal documents, and failure to properly disclose information requested in those applications can have very serious consequences. In the case of D&O coverage, the initial application will often require the applicant to poll its officers and board members regarding pending or potential claims. For these reasons, it is best to have all insurance applications reviewed by an attorney.

3. Understand what constitutes a covered claim under your liability insurance policies. Most of the liability policies that you will purchase—including D&O and employment practices liability—broadly cover claims against the company, and treat them as covered events well before they ever evolve into lawsuits. This can be a double-edged sword. If a pre-lawsuit demand letter, subpoena or other written document qualifying as a claim is promptly reported to the insurer, then your company can obtain coverage for legal fees incurred before a lawsuit is even filed. But these same policies almost always limit their coverage to claims that are both made against the insured and first reported to the insurer during the same policy period. Thus, if a demand letter is sent during policy year one, but a lawsuit is not filed until policy year two, and you fail to report the claim until it develops into a lawsuit in year two, your company will lose coverage for an exposure that otherwise would have been insured.

4. Set high expectations for your broker. Your broker is an essential insurance partner and is in the best position to advise you regarding which coverages you should buy, what limits of liability you should carry, and how much risk you should retain (in the form of either deductibles or self-insured retentions). Your broker will also be able to compare you to other clients in the same industry and tell you what those companies are doing. The broker can give you a realistic appraisal of what is achievable for your company (such as available coverage and pricing) given current market conditions and your company’s risk profile.

While your broker will have deep expertise, do not be afraid to ask questions and insist on excellent client service. If you are not entirely satisfied, initiate a broker selection process. When brokers compete for your business, you will get detailed analyses of your current risk profile, insurance program and areas for potential change and improvement.

5. Know when to call a lawyer. Do you have a question about whether the language of your present D&O policy is broad enough to cover certain concerns? Are you trying to decide between two different insurers, but having trouble spotting any material distinctions between their policy forms? An insurance coverage attorney can advise you regarding the proper legal interpretation of a specific policy form. Such counsel are also best able to evaluate whether a particular loss or claim is covered under your company’s policies—particularly in close cases. Flexing some legal muscle to maximize your insurance coverage is a worthwhile investment and has a direct, positive impact on your bottom line—making your company a more attractive investment and business partner.

Firm Highlights

Publication

Fire Preparedness for Vineyards and Wineries

Winter, spring, summer, fire season, and fall – as Californians, we have all become accustomed to a fifth season – fire season. Even worse, fire season was once confined to just a few months...

Read More
Publication

Nonprofit Basics: Insurance Coverage for the New Nonprofit

Welcome to EO Radio Show – Your Nonprofit Legal Resource . Risk management for a nonprofit starts with good governance, effective management and appropriate policies for employment practices, conflicts of interest and financial management...

Read More
Publication

Using Multi-Factor Authentication as a Prerequisite to Cyber Liability Coverage

Multi-factor authentication (MFA) is more than an annoying popup or text message when logging onto a company’s website or platform. Not only is using MFA a sound security practice and good business, it is frequently...

Read More
Publication

Maximizing Your Insurance Coverage for Data Privacy Liability

With news of massive data breaches making headlines in recent years, the handling of personal data has become a focus for legislators and regulators around the world. Compliance with data privacy regulations such as the...

Read More
Publication

Continuing Use of CGL Policies to Cover Data Breach Losses

Our lives and the products and devices we use become more dependent on data by the day. As a result, cyberattacks and data breaches present everchanging risks to companies and individuals, and the importance...

Read More
News

Who’s Who Legal 2022 Recognizes Farella Lawyers

Five Farella Braun + Martel lawyers have been recommended by Who’s Who Legal 2022 as leading practitioners in their fields. Who’s Who Legal – Environment 2022 James Colopy – Environment Robert Hines – Environment...

Read More
News

Farella Braun + Martel Earns 2023 U.S. News – Best Lawyers® "Best Law Firms" Rankings

Read More
News

Farella Attorneys Named to 2022 Northern California Super Lawyers and Rising Stars

Thirty-four Farella Braun + Martel lawyers were named to the Super Lawyers and Rising Stars lists of top attorneys in Northern California for 2022. Super Lawyers: Carly Alameda – Business Litigation George Argyris &ndash...

Read More
Publication

Caught in the Crossfire — How Will the War Exclusion Affect Commercial Policyholders?

The war exclusion has received a lot of attention over the past year, particularly since Russia invaded Ukraine in February. Policyholders’ concern that insurers will assert the exclusion as a basis to deny coverage...

Read More
News

50 Farella Lawyers in 2023 The Best Lawyers in America® and the Best Lawyers: Ones to Watch in America™; 4 Lawyer of the Year Awards

Read More