By Jeanine Donohue, Of Counsel, Buchalter (Jeanine is an experienced litigator with broad & diverse experience in insurance recovery, commercial, and real estate matters.)
Every business has or should have a portfolio of insurance policies to protect itself-from an employment liability policy to a third party liability policy to specialized policies. The problem is that insurance companies are not in the business of paying out on claims, rather they are in the business of collecting premiums and then making money off of those premiums-which can make things challenging for the policyholder. Best business practices are to:
There are generally two types of insurance:
Duty to defend. Your insurer pays for costs of defending you the policyholder in a third party lawsuit-and it is a broad duty here in California-the standard is “potential for coverage” based on the allegations and the policy provisions;
Courts in California are required to err in favor of the policyholder and coverage;
You may have the right to retain your own counsel and not merely accept the insurer’s choice of counsel.
Duty to indemnify. Your insurer has a duty to fund the judgment or settlement but the policy holder must prove the settlement fits within the coverage-not just potential coverage but actual coverage.
Check with your insurance broker a few months before your policies are set to expire so that they can shop around. Let your broker know what your business’ needs are and have them check to see if you can bundle any of your coverages for a discount. Do not leave this to the last minute!
You may be able to negotiate a lower retention (deductible) if you have a good loss history.
You may want your own lawyer to represent you rather than insurance panel counsel and you can try to negotiate your right to choose counsel.
Insurers routinely ask that policyholders sign a waiver of right to jury trial if you ever want to pursue an action against your insurer; you may want to negotiate a waiver of that requirement as juries are made up of policyholders and you want policyholders deciding whether your insurance company breached the contract or was acting in bad faith.
California is very protective of its policyholders so insurers will include a choice of law provision in your policy for another state-such as New York. You should ask to delete any choice of law provision that elects a state other than California.
Tender any claim to your insurer as early as possible. Your tender should be very bare bones indicating that your business was named in a lawsuit within coverage and here’s the complaint.
Tender any claim often. Do not limit yourself to one policy or one policy period-determine if you have other forms of coverage including whether your business is an additional insured on someone else’s policy.
We recently handled a matter where we tendered a claim to the client’s Directors and Officers (D&O) policy, which only required the insurer to pay the legal costs for the defense of the matter. But the D&O carrier asked to participate in mediation and in the end offered to pay money toward a settlement because it would cost the carrier more to pay an attorney to defend the case if it did not settle. The matter settled because of the money offered by the D&O carrier.
Seek in writing a reconsideration of any denial and reserve in writing the policyholder’s rights to dispute coverage limitations.
Sometimes it takes a few persistent letters before the insurance company will accept responsibly; unfortunately for businesses, a letter from coverage counsel can be the impetus for the insurance carrier to offer coverage because then insurance carrier realizes that you are, in fact, serious.
Get everything in writing and do not rely on verbal representations.
Work settlement opportunities-involve your insurer early and fully in settlement discussions-as discussed above, you can use the “Costs of Defense” argument to try to get an insurer to pay more money into settlement to make a case go away early.
Make sure though that you have the insurer’s prior consent to any settlement. Always provide the insurer in writing with any settlement demand. Know that if an insurer fails to fund a reasonable settlement within policy limits, that insurer will be responsible for resulting liability in excess of policy limits.
Unfortunately, especially given today’s insurance climate, it may be necessary to initiate a lawsuit. Make sure that your business retains a lawyer who specializes in insurance coverage. You may ask a potential candidate for their experience with insurance carriers and what their success rate is.
Your business pays for insurance for a reason-use your benefits to protect and grow your business.
From Connections Newsletter (Member Tips): June 2025
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The suggestions of the contributor do not constitute professional advice and are intended for general informational and educational purposes only. Nothing contained herein is intended to be or should be used as a substitute for professional advice, and readers should not act or rely on this information without seeking specific guidance directly from a qualified professional.
The opinions and information expressed in this blog/post/webpage are solely those of the contributor and do not necessarily reflect the views of FWSF. FWSF is not responsible for any errors or omissions in this content or any damages resulting from its use.