Questions to Ask
BEFORE Buying Insurance

Charles H. Van Gorder


When a retailer or outfitter decides to purchase liability insurance, it is more complicated than buying an automobile insurance policy. It is important to understand from whom you are buying your policy, what the policy covers and what are your obligations under the policy. This article is intended to make you an informed purchaser so that you will get the protection you need. A mistake in buying insurance or fulfilling the conditions of the policy can cost you your business, and perhaps a lot more!

WHO is the INSURER?
You need to make sure the insurer will have the financial resources to make settlement offers or pay judgments, if the need arises - that is the essence of insurance! Ask how long the company been in business and when they started insuring outdoor recreation activities? Is the company "admitted" to do business in your state? Have there been any complaints made to the State Insurance Commissioner's Office concerning the company? Several national financial services rate insurance companies according to their financial stability - a triple A rating is the best. Find out the insurer's most recent rating.

WHO is covered?
It is critical to know who is insured under the policy. Does the policy cover everyone connected with your company, including owners, officers, directors, employees and agents? What about interns, trainees or other volunteers that may help out but are not paid for their services? If you use independent contractors, are they covered under the policy? Sometime sponsors or landowners want to be covered by your insurance policy. You need to know the insurer's practice on adding additional named insured.  Will they do so, and if so, what is the cost? If there is more than one insured, are you covered for claims by a co-insured, such as a landowner?  

WHAT is covered?
The policy must be clear on exactly what activities will be covered. This includes the types of and location of the activities. How much flexibility does the policy permit? Many policies will not cover claims related to transportation to and from the activity site. The location of your activities must be agreed upon, especially if they take place outside the United States. Will you be covered if you are sued in another country, as might happen if you run trips in British Columbia or Baja? Another area of concern is the type of claim that will be covered by the policy. Normally, a policy will cover damages such as personal injury. However, will it cover damage to the participant's property, or to your own premises or equipment? Does it cover products liability? Is there medical coverage for participants?
 
WHAT is NOT covered?
Most insurance policies have an extensive list of claims that will NOT be covered. For example, injuries to employees are often not covered, so you will need worker's compensation coverage. If alcohol is permitted, are alcohol-related claims covered? You may also need specific policies for the use of boats, vehicles or other means of transportation. You need to carefully review the list of exclusions to be sure you can live with them.

What are the CONDITIONS?
An insurance policy will have list of conditions that must be met at the outset, and during the life of the policy, in order for there to be coverage. Many relate to specific risk management practices intended to minimize potential exposure to claims. For example, there may be a maximum client to guide ratio,  a minimum age or other participant qualifications. The policy may require you to utilize written liability release forms and indemnification agreements that have been approved by an attorney and the insurer. There may be requirements for minimum guide training and experience. You may be required to have specified equipment or services on every trip. Particularly important is a standard requirement that all accidents be reported promptly, even if there is not an immediate claim. You must know about and fulfill ALL of the applicable conditions so that the insurer will not have a basis for denying coverage.

WHEN is there coverage?
An important aspect of your insurance policy is the time period for coverage. An "occurrence-based" policy will cover all claims occurring within the policy period, regardless of when a claim is filed. A "claims-made" policy will only cover those claims that are actually made within the policy period. Thus, if you had an occurrence-based policy for the calendar year 1995, an accident occurred in September, 1995, and a claim was filed in May 1996, the policy would cover the claim. A claims-made policy, however, would not cover a claim made in 1996, even if the underlying accident happened in 1995. This is not a problem if you continue to purchase a claims-made policy each year. However, if you ever stop doing business, you will need to purchase an "extended tail" endorsement which will provide coverage for a specified number of years after the expiration of your final policy. If you purchase a claims-made policy, inquire about the availability and cost of extended coverage.

HOW MUCH coverage is there?
Most polices establish specific maximum dollar coverage for each policy period, for each accident and/or for each individual claim. How much to purchase is a business decision. You need to be adequately protected against potential claims, but you don't want to be the "deep pocket" plaintiffs typically seek out to sue. You need to be sure you know the applicable deductible - how much you have to pay off the top before the insurance kicks in. You also need to know whether legal defense costs are included in the policy limits. Law suits are incredibly expensive, and a $100,000 policy won't leave much to pay a judgment if your legal costs for a jury trial are deducted from that coverage!

Claims Handling  & Settlement
You must know how, to whom and when to report any accidents that may result in potential claims. Exactly what constitutes an "accident" under the terms of the policy? Also important is an understanding of how the insurer is going to handle claims. Who is actually going to handle the claim, and what is their philosophy? Are they going to agree to a quick settlement in order to keep down the legal fees? Are they willing to fight the claim tooth and nail, regardless of the cost, in order to protect to integrity of the industry and discourage frivolous lawsuits? Who makes the final decision on whether or not to settle? Who gets to choose the attorney who will defend you?

What is the COST?
This is a case where last consideration discussed may well be the least important. The cost of your insurance is a significant factor in choosing an insurer, but you often get what you pay for - don't be fooled by false promises. Be sure you know how the annual premium is calculated. Is it based on gross or net revenues, or perhaps on the number of "guest days" or trips? Is there a guaranteed annual premium, or is it subject to retro-adjustment if your activity is greater than estimated in your application?

Conclusion
The bottom line in purchasing insurance is to remember that insurers are businesses, and their objective is to make money. While they are trying to sell you a product, they will not give away their money if the claim is not covered, or if you have not complied with the conditions of the policy. Be a smart insurance shopper - know what insurance you need and what coverage you are actually buying. Be sure your application is complete and accurate, and that you comply with the conditions of your policy. Don't give an insurer an excuse not to cover your claim!! If you have a question about coverage, ask it in writing and get a written response. Ambiguities in insurance coverage questions are generally construed in favor of the insured. An insurer will know their policy inside and out - you need to know it as well!