Maximizing insurance claims starts with locating and notifying all potentially responsive coverages when facing a loss or claim. This article offers a 101 about what types of maritime-, transportation-, and shipping-related events insurance may cover and how to go about productively pursuing an insurance recovery when disaster strikes—even if your insurance company says “no.”
Two Overarching Types of Insurance
Without getting too far into the weeds of the many different types of insurance coverage available to policyholders, think about them as falling into one of these two broad buckets: (1) first-party insurance coverage, and (2) third-party insurance coverage.
First-party insurance describes coverages that respond to a policyholder’s losses, which do not involve any claim asserted against the policyholder (e.g., you, your business, your employer). First-party property policies such as marine property insurance and bumbershoot property insurance, for example, typically insure against loss of, or damage to, the policyholder’s property (e.g., structures, terminals (including piers, breasting dolphins, storage tanks, etc.), electronic equipment), as well as coverage for lost business revenue. These first-party property policies frequently are “all risk” policies, meaning they cover the policyholder’s losses unless caused by an expressly excluded peril that the insurer can prove (e.g., ordinary wear and tear). Property policies often include business interruption coverage and coverage for inventory or goods lost or damaged in transit. Other types of first-party policies relevant to the maritime industry include:
- Inland Marine Insurance that protects movable business property for policyholders that aren’t on the seas, including trucking and construction companies, property developers, and contractors, for example;
- Marine Hull and Machinery Insurance that protects from physical damage to ships, vessels, and their machinery on the water, at the dock, and under construction for most sizes of commercial vessels including tugs, barges, dredges, and passenger vessels;
- Marine Cargo Insurance that protects goods while in transit, across various modes of transportation, and while in storage; and
- Political Risk Insurance that protects against losses caused by “political” events in a foreign country.
Third-party insurance coverage sometimes is called liability insurance. That’s because it includes policies that provide insurance for the policyholder’s liability to third parties alleging damages. Perhaps the most well-known form of third-party insurance for policyholders in the maritime industry is maritime general liability insurance (and excess bumbershoot liability insurance), which provides broad coverage for allegations asserted against the policyholder for bodily injury, property damage, and product and completed operation for marine risks. Other types of potentially relevant third-party policies include:
- Cargo Owner’s Liability Insurance to protect against the risks for property damage, bodily injury to third parties, and as a result of pollution from a cargo event in ocean transit;
- Shipowners’ Liability (“SOL”) Insurance for a shipowner’s exposure arising from an alleged breach of a contract of carriage and certain liabilities that fall outside of the Protection and Indemnity (“P&I”) Club’s standard P&I rules;
- Directors and Officers (“D&O”) Insurance that protects companies and their corporate officers and directors against claims alleging wrongful acts and may cover legal fees for responding to subpoenas and search warrants; and
- Pollution Liability Insurance to supplement or bolster pollution coverage that may exist in other marine liability (and property) insurance; some policyholders have standalone pollution liability insurance to broadly cover allegations of property damage from an actual or threatened pollution incident (spill) including fines, penalties, criminal defense, and more.
A single event can implicate several types of coverage found in multiple different insurance policies. For example, a vessel colliding with a terminal may involve loss to:
- the terminal’s structures and equipment covered by a marine property insurance policy;
- the terminal owner’s profits covered by business interruption insurance (and other time element coverages);
- claims by third parties (adjacent property owners or the government, for example) alleging property damage from pollutants released from the vessel or terminal’s structures that are covered by marine general liability insurance and pollution liability insurance;
- claims by shareholders alleging malfeasance in allowing the collision to happen (depending on which entity was responsible for the tugs, for example) that are covered by D&O insurance; and
- this does not begin to untangle the myriad insurance implications when analyzing claims against the vessel and potential subrogation claims.
It’s important to look for responsive coverage from a company’s entire insurance portfolio when facing a loss or claim.
Three Things to Keep in Mind When Pursuing Insurance
Many policyholders don’t productively or efficiently pursue all of the insurance that is provided by their insurance policies. Here are three considerations when filing claims:
- Be prompt. One of the most important first steps in pursuing insurance is to make sure that notice of a loss, claim, or occurrence is prompt and otherwise meets the requirements of the insurance policy.
- Be thorough. It is important to look at all potentially responsive coverages that may be located in several different insurance policies with varying notice provisions. The general rule is that notices should be given under all possible policies that might be triggered—regardless of type, year, or layer. The old adage “better safe than sorry” never rings more true than when it comes to a company giving notice to its insurers.
- Be diligent. As already stressed, the notice provisions in insurance policies also may specify how, and in what form, notice should be given. The policies typically identify to whom notice should be addressed, and request a statement regarding all the particulars of the underlying claims.
After a loss or claim has occurred, the policyholder should present its claim to the insurer in a way that will maximize coverage. Many legal issues, such as trigger of coverage, number of occurrences, and allocation, can significantly affect the existence or amount of an insurance recovery. Moreover, certain causes of loss or liability may be excluded from coverage, while others are not. These are complex issues that vary by state law and require a high level of legal sophistication to be understood and applied to the facts of a particular case.
The insurer may respond to its policyholder’s notice letter with a request for information. Such requests may seek to have the policyholder characterize its claim in a way that will limit coverage. Before the policyholder engages in any such communications with its insurance company, the policyholder should know what legal issues are likely to arise, and how best to describe its claim to maximize coverage.
It’s important to get the little things right from the beginning to avoid being blindsided and enhance the likelihood of succeeding at the finish line.