Archive for category Policies

Who You Gonna Call? Reporting Claims

People frequently overlook one of the best values of a liability policy which is the insurance company pays to investigate and defend a claim. But the insurance company has to receive timely notification of a claim or incident to trigger or initiate these defense expenses. Too often the insured (you) contact your legal counsel and forget to call your insurance agent to report the claim.

True story

An association received a letter from an attorney representing a terminated employee seeking restitution for alleged discrimination. The association sent the letter to its attorney who did a little research and wrote a letter to the employee’s attorney saying “go away.” Several months later the association received a letter announcing a court award of a judgment to the former employee. The organization did not respond to the complaint nor appear in court because it failed to notify its registered agent of its new address.

At this point the association finally contacted its insurance agent to file an Employment Practices Liability claim. The insurance agent presented the claim which the insurance company denied due to late reporting. The association was very lucky and had a good agent who after much pleading and negotiation the insurance company agreed to pay the defense costs from that point forward. The carrier was within its rights to deny the claim.

What went wrong?

The association did not call its insurance agent as soon as it received the original demand letter but rather had its legal counsel “handle it.” This common practice jeopardizes your insurance coverage. Frequently attorneys tell association executives to contact them as soon the person becomes aware of a claim or potential legal action. A few attorneys even tell clients they will advise the association if it should submit the claim to its insurance company.

WRONG! The insurance company is the only party that decides whether or not a claim is covered. So your first phone call must be to your insurance agent so he or she can guide you in filing a claim or notice with the appropriate insurance companies. Neither your attorney nor insurance agent should decide whether or not to report a claim.

Why?

Every insurance policy requires claims to be reported in a timely manner.  The insurance company wants to investigate the claim immediately while memories are fresh, people are available and the evidence can be preserved. Many states have laws that stipulate late reporting can relieve an insurer of its responsibility to defend and pay a claim. A few states mandate that the reporting delay has to have a “material effect” on the company’s ability to defend the claim to negate coverage. Regardless of the applicable law, you are better served when the insurance company begins its investigation promptly.

Defense Expenses

Second, the insurance company’s responsibility to defend the insured is the most valuable coverage under a liability policy. Defense costs can exceed the actual claim payment. For example you may win in court or convince the claimant to go away but will still have defense costs.

Each policy’s defense provisions stipulate if the insurer has the right and duty to defend the insured. If the insurer does not have a duty to defend, there may be an option for the insured to tender its defense to the insurance company. However even if you do not tender the defense to the company the carrier still has to approve in advance any defense expenditures paid by you. Under most reimbursement provisions, the insurer will advance defense expenses (pay before the claim is settled).

It is important to know how defense costs are covered under each policy. In most general liability and auto policies defense costs are paid in addition to the policy liability limit(s). The full limit is available to pay any settlement or judgment. Most Directors & Officers and professional liability policies have defense expenses within the policy limit thereby reducing the amount of money available for claim payments. Some insurance companies offer an endorsement (for an additional charge) making defense expenses “outside” the policy limit. Check with your insurance agent to determine the defense provisions for your key liability policies.

Bottom Line

You are probably paying a lot for your insurance policies and should receive its full benefits. Therefore all claim and incident notices should be filed promptly to the insurance company. Make sure every supervisor, manager, executive, general counsel and key volunteer (board and committee members) knows how to report any incident or event that could lead to an insurance claim to the proper person. Remind them often of the importance of timely notice and how to report an incident or claim.

The association’s first call or email should be to the insurance agent or broker who can guide them through the reporting process. The second call can be to General Counsel or your outside legal counsel but it is more important to notify the insurance company via your insurance agent. Don’t rely on your attorney to decide if you have insurance coverage; only the insurance company can make that determination.

Late claim reporting can cost you thousands (or more) of dollars in defense costs that the insurance company would have paid (within the terms of the policy) if you told them sooner.

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Policies and Strategies

We all write policies, lots of them. It’s one of the services I provide to my clients. But what purpose do policies serve? Should they serve? Do your current policies meet these purposes?

My hypothesis is we have too many documents called “policies” that are really procedures, rules and guidelines, not policies. For example, personnel manuals contain “employee policies” but most are rules (with a few guidelines) such as office hours, leave/time off, electronic communications, workplace environment, and benefits. Even your social media policy isn’t a policy but guidelines on how employees should behave while online.

Many “policies” are written as a knee-jerk reaction to an incident such as a dress code because someone wore inappropriate attire to work. An employee spends too much time on personal phone calls so we write a “policy” to restrict personal use of office equipment. As many associations still struggle with social media, under the guise of a policy, they implement rules to restrict access to social sites during office hours and limit employees’ participation during non-work time.

Policy

So what is a policy? A policy documents an association’s guiding principle(s) on a specific subject or issue. A well-written policy is aspirational and supports our various strategies (see discussion below). Policies are the “what” we plan to do to meet our vision, mission and corporate culture. Through policies we clarify who and what we want to be as an organization.

A Guide for the Development of Policies and Procedures in Ontario’s Community Literacy Agencies states:

Essentially, policies are the guidelines, intentions and plans for WHAT an organization proposes to do while procedures are an outline for HOW these wishes and intentions are to be carried out. (p. 9)

Policies help people make better decisions; offer guidance on how the organization wants us to behave. Well-written, strategic policies enable the decision to be intuitive to the employee, member or volunteer as a reflection of the association’s mission and reason for being.

One challenge in drafting policies is that the document needs to be flexible but written clearly enough to be applied to unanticipated circumstances. No policy can take into account or address all of the possible situations the decision maker might encounter but offers insight into how to solve the problem.

Rules and Procedures

Most, if not all, policies need to be supported by rules, procedures and guidelines which document how we will carry out the “wishes and intentions” of the policy. For example, a personnel policy may say that all employees are valued human beings, to be treated with respect. From this premise of respect an association then develops its personnel rules, procedures, guidelines and benefits. Any tasks related to a policy should be standardized, such as finance and accounting procedures. There are also regulations and compliance requirements that have to be addressed via procedures, rules and guidelines.

Strategy

We can’t discuss policies without considering their strategic role. Strategy comes from the Greek word “strategia” meaning “office of general, command, generalship” reflecting its military roots. The business world adopted this military concept using it as a plan of action designed to achieve a vision. Through strategies associations determine where it wants to go and what it wants to accomplish as an organization. Association strategies include marketing, social media, membership, finance, fundraising, human resources, advocacy and so on. Policies develop and evolve from these strategies.

In game theory, strategy refers to one of the options that a player can choose. That is, every player in a non-cooperative game (chess) has a set of possible strategies, and must choose one of the choices. Therefore strategy setting involves evaluating numerous options and choosing one that best meets your vision and mission.

Think Before You Write

The association industry continues to discuss the future of associations. Some believe the social revolution has made associations unneeded, superfluous. Others think that association must undergo a massive shift with a new business model. And some believe associations are just as vital today as years ago. The best aspect of this discussion is that associations are questioning their existence and purpose.

I believe that most associations (and businesses including mine) are fuzzy on what they want to be, why they exist and how they make the world a better place. This lack of focus lets us try a little bit of everything – try to be all things to all people.

Policy writing when done strategically helps an association clarify who and what it is (or wants to be) for its members and other stakeholders. We often establish rules and procedures often under the guise of being a policy without asking why. What do we want to do to be a better association? How will this strategy and subsequent policies make us better? When you answer these questions you can write a strategic policy that will serve you well.

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Policies and Liability: Helpful or Harmful?

I recently attended a risk management seminar for sports and recreation facilities, businesses with a high potential for big liability losses. The tone of the seminar bothered me. The speakers were a loss control professional, two defense attorneys and a representative of the trade association hosting the event. The attendees were well aware of the risky nature of their operations but only one or two were professional risk managers so they had to depend upon the information presented.

The disturbing message I heard was that a facility needs lots of policies and procedures but shouldn’t write them down. The speaker while discussing the need for a policy for handling children using the facilities, said to have a policy, make sure all employees know it but don’t write it down. What? How do you run a business, association or nonprofit without having written policies and procedures especially on children? How will your employees and volunteers know how to do their jobs?

The theory behind this “no written policy” belief is that if your policy says that employees must do X you have created a standard or duty of care. If the employee didn’t do X and someone got hurt the organization has breached its duty and may be liable. BUT if you don’t have a policy then you don’t have a duty to perform (not true). Consequently without a standard you can’t breach it and without a breach of duty you can’t be liable. Interesting theory but it’s not practical in the real world.

Policies are a double-edged sword. Your policy may create a standard of care which exceeds the basic requirements and put you at risk. However whether you have a policy or not society has its own opinion on the expected duty of care. Your behavior during a loss will be examined on the legal concept of the “reasonable or prudent person.” Under the prudent person rule the court will judge your behavior against the conduct of a hypothetical prudent person with similar background and experience under similar circumstances. So the legal system will get you either way. In the extreme, a court could rule that it was negligent to not have a policy for handling certain types of situations especially if similar organizations have established policies to address the issue. For example, the public expects organizations serving children to have a staff screening program. If your organization doesn’t have a screening program, your defense is a lot harder since the plaintiff’s attorney will argue a prudent organization would have such a program. Aside from the legal aspects, don’t you want to protect children from predators?

The issue isn’t whether or not you should have written policies, procedures and guidelines (you should) but that these documents need to be written properly. You don’t want your policies to exceed but rather meet the prudent person standard. Once you decide the need for a policy, it should:

  • Support your organizational culture and values so the information is somewhat intuitive.
  • Be practical and enforceable (and you enforce it).
  • Be flexible so you have some discretion in interpreting the policy and the proper discipline.
  • Be consistent throughout the organization.

Once you have written the policy you need to design a training and education program to make sure all personnel know and understand the policy. It is really bad to have a policy that no one follows – the plaintiff’s attorney love that since you just made it easier for them to win.

So my risk management advice is to have well-written policies and monitor their usefulness and enforcement. Don’t be afraid to change or drop a policy that isn’t working. Your employees, volunteers, members, customers, clients and service recipients will benefit from your efforts.

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