A Difference to be Identified
by Billy West
All entities within a portfolio are not necessarily covered under the same corporate management liability policy. This can be a detrimental assumption made by insureds who own multiple companies. Accurate information and education on this distinction can save hundreds of thousands for owners.
The Differences to be Identified
Industries such as healthcare, hospitality, and real estate will often create single-purpose entities to help manage the liabilities associated with singular ventures. Owners may mistakenly confuse covered subsidiaries with non-covered affiliates. While newly formed corporations or limited liability companies may be owned by the same listed owner(s) of the Named Insured identified on the insurance policy, this may not be true for the named insured. It is critical that this distinction is made.
For carriers, it is the responsibility of the company and the insured to update changes in the organizational structure or newly formed affiliates to be covered under existing policies with the underwriter. With automated renewal quotes being sent to insureds, incorrect assumptions are made and risks are increased. The can be costly mistakes due to gaps in coverage. That is why it is so important for agents to explain the difference and potential consequences. Before a claim is made that is not covered by an existing policy, resulting in large, costly losses, agents should work with clients to be sure each company the insured wants to be covered and its ownership structure properly defined. This can and should be done at each renewal. An uncovered affiliate may be added to the policy free of charge if the rating exposures are included on the application.
A Proactive Approach
Waiting for a claim to be denied is not the best approach. Working with clients to understand their businesses will help to identify gaps in coverage and what needs to be addressed in their corporate D&O or EPL policy. Helping clients in their understanding of the differences between subsidiaries and affiliates, having them identify which and what they want to be covered at the time of renewal, and an overall proactive approach helps prevent expensive claim denials.