By Hank Clement, Managing Director, Altus Corporate Risk
When you experience a claim or you’ve been sued, your first reaction is probably to call an attorney. Getting legal counsel to help navigate through paperwork, processes and procedures is a great first step in ensuring you’re implementing the right practices to protect your company, your employees and your clients.
But when it comes to insurance, going to your attorney first could actually be the wrong move.
Depending on your insurance coverage, you may not have the right to choose the counsel that represents you. That decision might actually be in the hands of your insurer. If you work with unapproved counsel, you could be jeopardizing insurance protection or you could be left paying out-of-pocket for legal expenses.
We’ve seen this mistake happen too many times. A client experiences a loss and goes straight to their trusted attorney to handle the claim. After everything is resolved, they file expenses related to the claim with their insurer only to find that they won’t be reimbursed for their legal expenses or any damages paid out. They’re left with tens of thousands (sometimes even hundreds of thousands) of dollars in bills they must pay.
Here’s an example. An insured suffered a cyber breach and made their first call to their trusted law firm. They worked with their attorneys to navigate through the situation and incurred close to $100,000 in legal expenses. A few weeks later, they decided to get their insurance carrier involved. Unfortunately, their cyber policy carrier stated that the insured needed to use the carrier’s panel counsel and was unwilling to reimburse the already-incurred legal expenses. The insured was left paying that $100,000 bill out of pocket.
Insurers have taken a stronger position with regards to using their pre-approved counsel to defend their policyholders. In the past, insurers gave policyholders some leniency to choose attorneys outside their pre-approved list if the insured was willing to pay the difference between pre-approved rates and their attorneys’ billing rate. Over the past couple of years, fewer and fewer insurers are allowing the insured to select their own counsel, even if they’re willing to cover the price difference.
It is important to note that any expenses that you incur will not count towards your deductible until the claim is reported to the carrier. For example, if you have incurred thousands of dollars of legal expenses before the claim is reported to the carrier, those incurred expenses will not be allocated towards your deductible.
However, there are certain policies that will allow you to select your own counsel to defend you. Since there are many nuances with how policies will respond to the defense of a claim, it is important to know how each policy responds before there is a claim.
Speak with your insurance broker on how each policy will respond in the event of a claim before a loss happens. If there is a law firm that you want to defend you, the best time to try to get them approved by the carrier is before a loss happens. Once there is a claim, the carrier will be less likely to approve a non-panel law firm.
Most importantly, if you suffer a loss or a claim, you need to notify your insurance broker as soon as possible. Your insurance broker does not need to be the first phone call, but it should be a priority.
Anytime you have a claim or think that you have a claim, reach out to your Altus Corporate Risk team. As your insurance advocate, we can walk you through your policies to help you better understand the appropriate next steps to take so you don’t end up with astronomical expenses you’re expected to pay out of pocket.