Magazine article Risk Management

5 Insurance Tips for Emerging Companies

Magazine article Risk Management

5 Insurance Tips for Emerging Companies

Article excerpt

When a new company moves to secure funding and formalize operations, insurance is often an afterthought. But with a bit of effort, emerging companies can obtain strong insurance protection, maximize their existing coverage, and make themselves more attractive to future investors and other partners. Emerging companies should focus in particular on commercial general liability, data privacy and cyber liability, errors and omissions liability, directors' and officers' liability (D&O) and, depending on the number of employees, fiduciary liability and employment practices liability policies. An effective risk management strategy will also depend on strong external support from insurance brokers and counsel.

The following are five best practices for getting started on an insurance program:

1. Purchase strong insurance products that make sense for your company. Pricing for insurance can vary widely, and it is often true that "you get what you pay for." At the same time, many policies will contain bells and whistles that appear attractive, but from which you will never get much value. Closely study the quotes you are offered, and make sure you understand what you are purchasing, what the policy will cover and what it will not. Ask your broker and/or outside insurance coverage counsel about specific insurers' reputations for claims handling practices.

2. Take insurance applications seriously, particularly for D&O policies. Insurance applications are important legal documents, and failure to properly disclose information requested in those applications can have very serious consequences. In the case of D&O coverage, the initial application will often require the applicant to poll its officers and board members regarding pending or potential claims. For these reasons, it is best to have all insurance applications reviewed by an attorney.

3. Understand what constitutes a covered claim under your liability insurance policies. Most of the liability policies that you will purchase--including D&O and employment practices liability--broadly cover claims against the company, and treat them as covered events well before they ever evolve into lawsuits. This can be a double-edged sword. If a pre-lawsuit demand letter, subpoena or other written document qualifying as a claim is promptly reported to the insurer, then your company can obtain coverage for legal fees incurred before a lawsuit is even filed. …

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