Repairing Damage, Selecting Counsel, and Incurring Defence Costs
In the latest in our series on policy pitfalls, Alex Reynolds of Marsh’s Complex Claims & Disputes Team looks at the difficulties in dealing with losses and claims yourself.
When your organisation suffers damage to its property or interruption to its business, you want to remedy that damage and recommence trading as soon as possible. Similarly, the natural reaction to receiving a third-party claim is to appoint lawyers to defend you and reduce your potential exposure, particularly when your reputation is at stake.
An insurance policy may require insureds to seek insurers’ consent before taking any steps to deal with losses, defend claims, or incur related costs and expenses. Acting without consent can lead to a refusal by insurers to indemnify.
In addition, insurers may require insureds to appoint insurers’ own vendors/tradesmen or preferred counsel. Insurers may be persuaded to use an insured’s usual vendors or counsel, but they may only agree to indemnify an amount equal to the cost they could have achieved with a preferred supplier, or the hourly rate equivalent to that agreed with their preferred counsel.
Where the costs of mitigating your loss are covered, insurers’ consent is usually required before they are incurred.
Even where mitigation costs are not covered by the policy, the insured may nonetheless be required to refrain from taking mitigating steps without insurers’ consent.
Some policies may positively require the insured to take steps to mitigate the loss, whether or not the costs of doing so are covered. If this is expressed as a condition precedent to liability, the insured may lose cover for the whole claim if the requirement is breached.
Even if mitigation is not covered it is nonetheless worth working closely with insurers and looking into the possibility of an ex gratia contribution to the costs of mitigating a loss or claim (although this would be at the insurers’ discretion).
In order to protect yourself, you should:
- Check the policy terms and conditions regarding mitigation, consent, and the incurring of costs.
- Check with your insurers before remedying damage or instructing counsel.
- If it is imperative that you instruct vendors (for example, to continue your business and mitigate your loss) or counsel (for example, to obtain an injunction) before you can obtain insurers’ consent, seek retrospective consent as soon as possible after the instruction.
- Seek the early involvement of insurers if you are trying to mitigate against further loss, or a claim or potential claim.
In the next of our series we will look at claims co-operation and third-party settlements. In the meantime, you can find out more about this topic and other policy pitfalls in our paper