The way in-house law departments interact with the companies they support is transforming. These days, corporate counsel work closely with C-suite executives to advise on wide-ranging issues, especially around risk. While corporate risk management and the legal department often overlap – 40% of GCs oversee risk, according to one survey– ultimate decisions about the insurance portfolio as a hedge against risk, however, are frequently made by executives who do not always consult with in-house counsel.

"Companies sometimes make decisions around the purchase of insurance without being able to read the complete policy or understanding what they've bought. That can lead to disastrous results," says Carrie M. Raver, a partner at Barnes & Thornburg and co-chair of its insurance recovery group. "I find that most often, GCs are the best decision-makers on what kind of insurance to procure."

The implications are real: Commercial premiums in 2023 are forecast to increase 10% across the board, with spikes as high as 25% or more in cyber insurance alone, according to the Risk Management Association. This is critical to remember when GCs are responsible for managing risk, but the CFO, CIO or COO are making decisions about insurance coverage.

Corporate counsel should play a significant role in influencing executive-level decision-making for procuring insurance policies and pursuing claims, adds Raver. In both instances, understanding policy provisions and developing best practices for executives who make final decisions about these complex contracts helps mitigates additional risk.

Understanding problematic provisions

There are several problematic provisions in commercial policies that in-house counsel must ensure that C-suite executives know before making insurance policy decisions. The first revolves around choice-of-law in favor of New York, which is a notoriously difficult state for policyholders. "New York is not known for being policyholder friendly," Raver says. "Insurance companies choose this state even when neither party has any connection to New York whatsoever."

Similarly, insurance companies try to control the method of dispute resolution by writing arbitration clauses into their policies. Such policies should be scrutinized, says Raver. Other issues involve sublimit amounts of recovery – particularly in cyber coverage.

"Policyholders should get one limit of liability in their policy," Raver adds. "In a perfect world, GCs and executives would have time to work together to really read the policy to catch issues such as these before coverage is bound."

Raver points to a provision that roughly says contract ambiguities are to be construed in an "even-handed manner" and not against the drafter. "This turns basic insurance law on its head," she says. "Brokers sell standard-form policies to companies that aren't able to negotiate terms. If there's an ambiguity it should be construed against the insurance company."

Developing best practices 

GCs must also work with the C-suite and create a "state of the company" discussion before renewals. "What does the company look like today? Have any recent changes created a new risk exposure?" says Raver. Discussions like these keep insurance top-of-mind.

GCs need to get up to speed on coverage issues or claims that their industry is commonly facing and discuss with outside counsel how – and when – to report them.

For Raver, it comes down to viewing insurance as an investment that can work when GCs understand a policy's provisions and create best practices that sync with the C-suite's needs. "Be prepared to spend money on insurance," she says. "But it also pays to assemble a strong team to face any issue that arises."

Barnes & Thornburg's Insurance Recovery and Counseling practice has additional information for in-house counsel about insurance and risk.

Johanna Marmon is a writer in upstate New York who has been reporting on trends impacting the legal industry for more than 15 years.