Business Workshop: A price for 'relative exposure'
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Insurance companies are more frequently including an obscure benefit-cutting clause into business insurance policies.
In the past, business insurance policies usually directed the carrier to cover the entire cost of legal fees and related expenses, even when only part of the claim was covered by the policy.
But over the past few years, insurance companies have increasingly put "allocation" or "relative legal exposure" clauses into the fine print. These clauses require carrier and insured to use their best efforts to determine a fair allocation of payments between covered and uncovered claims. The insured then becomes responsible for covering the legal costs allocated to uncovered claims.
Not only does the allocation clause reduce benefits; it also opens the door to disputes over what is a fair allocation, which in turn may lead to costly litigation.
While the allocation clause is not new, it is popping up much more frequently in directors and officers policies. One large insurance company has even recently added it to its new professional liability insurance form. So, caveat emptor: Let the buyer of business insurance beware.
-- Richard T. Victoria, Meyer, Unkovic & Scott, rtv@muslaw.com
First Published April 4, 2007 12:00 am
