Security Sales & Integration October 2022 - 58

EXECUTIVE DECISIONS
Legal Briefi ng by Ken Kirschenbaum
ken@kirschenbaumesq.com
What to Do When Your Insurer
Hangs You Out to Dry
The issue
becomes more
acute when the
claim exceeds
coverage and
you begin to
believe your
carrier isn't
doing all it
could or should
to protect your
interest.
▶ YOU CARRY E&O coverage for peace of mind
and to protect you (pay on your behalf) your defense
costs and any damages that may be awarded
against you for claims brought by your subscribers,
their insurance carriers and sometimes third
parties. If you've had a claim and turned it over
to your insurance carrier you know that fi rst you
hear from a claims representative and often in the
fi rst communication you are advised that your carrier
has assigned defense counsel to represent you
in the lawsuit (assuming a lawsuit has been fi led
- typically your carrier won't engage counsel for
you until a lawsuit is commenced, which is often
a poor decision since you are looking for guidance
before a lawsuit is fi led).
If you've had a claim you also know that your
carrier will often focus on your deductible early
in the claim assessment process, letting you know
you're on the hook for it and you either have to
pay it out as defense costs are incurred or you can
wait until the case is resolved to send in your deductible.
Once your claim is accepted for coverage
by your carrier and you've resigned yourself
to having to pay the deductible and spend your
time participating in the defense of the claim, you
should be able to let the carrier protect your interests
and resolve the case eventually.
But what happens when your carrier may not fulKen
Kirschenbaum, an
SSI Industry Hall of Famer,
has been a recognized
counsel to the alarm industry
for 45 years and is
principal of Kirschenbaum
& Kirschenbaum, P.C.
(kirschenbaumesq.com).
The opinions expressed in
this column are not necessarily
those of SSI, and not
intended as legal advice.
58
ly cover the claim or lawsuit? Th is can arise when:
▶ Th e carrier isn't sure that it has responsibility
to cover the claim but it decides it
will cover the defense cost, at least until it
decides if it has to cover the claim (this is
called covering the claim under a reservation
of rights).
▶ Th e claim exceeds your policy limits,
leaving you exposed to damages in excess
of your coverage.
Th e issue becomes more acute when the claim
exceeds coverage and you begin to believe your
carrier isn't doing all it could or should to protect
your interest. You begin to suspect the carrier is
really looking to protect itself rather than you.
Let's weave a scenario where there is a very good
chance for liability and damages. You install an
Security Sales & Integration OCTOBER 2022
alarm system, without a proper contract, know
you made a mistake and the subscriber suff ered
damages well in excess of your policy limits. Your
carrier takes the defense. You want to move on,
so you send in your deductible and try to ignore
the lawsuit. You've got $1 million in coverage. You
know the loss exceeds $10 million in damages, but
you're not the only defendant in the lawsuit.
You begin to have doubts that your case is being
properly defended when the carrier sends you a
letter advising that the claim exceeds your coverage
and you now have the right to engage your
own counsel, at your expense, to advise you. You
are under the belief that your carrier is exposed
only to policy limits of $1 million, leaving you
exposed to another $9 million plus interest. One
concern you have is can the claim be settled for the
$1 million now, eliminating your exposure and
has your carrier tried to settle within policy limits,
or is your carrier willing to risk a trial because its
limit of exposure is only the $1 million?
Th e role of your private counsel is to monitor
the defense of the lawsuit. In New York, and
most (if not all) other states your carrier owes
you a duty of " good faith. " It must place your
interests above its own. If your carrier is found to
be in " bad faith " it can be liable for an award in
excess of the policy limits. In other words, if your
carrier could have settled and should have settled
within policy limits but decided to roll the dice
on a bluff , unreasonably exposing you, it can be
held responsible for its bad faith and required to
pay the excess award.
If you're in an excess claim situation you need
to have experienced counsel monitor the case.
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Security Sales & Integration October 2022

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