Business Insurance Tips

Business Insurance
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We sat down with Ryan Sandstrom of Copper Canyon Law. He is an insurance attorney with extensive knowledge in business insurance and contracts. If you own a business and want to insure it’s protected properly, you’ll want to watch this video.

Copy of the transcript is below:

Background on Insurance Attorney

I spent the last 15 years focusing on insurance law particularly. So I actually worked for a judge handling insurance dockets. I actually used to sell insurance as a broker. Um and then I worked for a number of different carriers, worked for a big firm in phoenix for over a decade and I mean you name the insurance company, I’ve probably represented them at some point interpreting policies, interpreting coverages down to the nitty gritty of individual lines of policies.

And also an insurance broker now. And so part of our practice is helping people not only just understand the risks on the back end, but planning for those on the beginning, on the front end. We have a lot of experience. Yeah, I’d say 15 years and, and it’s not just, you know, selling policies, it’s understanding all the intricacies of how these policies work and how it fits with the legal framework as well okay, it’s something and then we’ll talk about that today, but that’s something that’s often overlooked.

Okay, awesome. Well I’m excited. Let’s go right into it. Give us the three tips. Alright, perfect. So this is for commercial insurance, everybody works really, really hard to build your business and to build your assets.

So the honest question I have when I’m talking to business owners is how hard are you working to protect those assets? I think everybody is very cost conscious and they want to make sure that they’re buying policies that fit their budgets. But I’ll tell you it happens very often, after the fact where somebody says the phrase, I thought I was covered for that. I’m sure you’ve heard that a lot. Absolutely.

I hate hearing that phrase, right, when I thought I was covered for that, so I try to do what I can on the front end on both the legal perspective, business contracting framework and the coverage side of things to avoid that. Let’s be honest, if you’re looking for a discount policy that fits your budget, you can expect discount coverage.

I mean there’s gonna be a lot of exclusions and a lot of things that probably don’t apply to your business and unfortunately that’s the coverage you bought, and that works for some people, right? I mean, if coverage is not too big of a concern and you’re cost conscious that’s okay too.

But understanding that you’re probably going to get discount coverage, that’s the reality of it. And maybe when you’re starting out that may be your only option. Right? But after a while I mean your business is your baby. 100%. You built that up. 100%. You’ve got to protect it.

Exactly. Right. So one of the things I want, once you’re at the point where you say, you know what I’m not just buying the you know bottom cellar policy, that’s the cheapest one that’s out there when I actually want coverage to protect what I built to give me that peace of mind.

Insurance Risk Audit

There’s a couple of things that I recommend at all times. Number one is a risk audit. Okay so that’s actually coming in and almost from an underwriting perspective, so I used to work in house for a big insurance company as well. So I got to see how they evaluate coverage at the time the policy was placed and how that was interpreted after the fact.

So a risk audit. What that means to me is that includes both insurance and legal. So say for example you have a business and you have contracts with other people out there. A lot of construction companies have subcontracts. There are provisions that are in those subcontracts that assume responsibilities and assume duties and for example indemnity provisions have defense and indemnity.

Oftentimes those provisions aren’t covered by your insurance policy because it’s an insured contract that you’re buying. So that’s a really scary thing to me, is all of a sudden you have this, you think, oh I have this contract legal side. I’m good. I have this insurance policy so I must be good.

But sometimes the good agents and brokers are not talking with the good lawyers. So an insurance auditor is basically, it’s an underwriting process to understand the legal and the insurance risks and making sure those are all protected by your policy. Makes sense. So I know a few companies out there that are labeled as insure tech, you know fast like you can go and buy the insurance policy yourself.

Right. A lot of those policies specifically exclude subcontractors. Exactly, right. They don’t know that they go, oh this is the faster the policy. I tell them what I am. They say I’m covered. But they don’t know that. It’s the nuances and it’s the nitty gritty of the policies that most people never read right.

It’s the, you scroll through the box of all those, you know, terms and conditions, you know, and just click accept exactly and then you hope it covers everything but people haven’t taken the time to check those things. I don’t expect business owners to understand all the nuances and intricacies of those policies or how they work.

So, but that’s why we’re here and that we can educate the business owners and teach them that it’s not just reading those generalities and saying, I hope I’m good. But allowing somebody to come in a lot of experience, both on the legal side and the insurance coverage side, and to say, here’s what you’re looking at, genuinely, here’s your risk, here’s your gaps and then accounting for those gaps.

Absolutely, yeah, you shouldn’t feel bad as a business owner if you don’t understand that your business is something else completely. Aside from contracts or insurance, 100% your job is to actually read that and let them know. And then for all the insurance producers out there, you know, one of the things I always very conscientious about, I don’t want to step on anybody else’s toes.

So I try to be a resource from the legal perspective and for the brokers to say, look, if you’re trying to land the big policy, if you’re trying to help somebody make sure all the coverage is protected, then we work together on those things. And so again, I don’t charge a fee for that because I’m a broker, I can actually be part of co write the policy with other agents.

So again, just a resource that I can provide to other agents to make sure that honestly from a liability perspective from the agents that they’re protected too. And you know, I’ve dealt with claims where the agent or producer actually gets sued after the fact for not placing the right policy.

So I’m, in a way, I’m trying to help them avoid those as well. Perfect. Then everyone’s happy, the agents happy, the clients happy. No one’s getting sued and and there’s not any extra fee to it. That’s the whole point.

I mean if we come in and we really understand, try to understand if we have to modify things from the legal perspective, then of course we start talking with these and then if we place a new policy or modify the policy, then of course there’s gonna be an underwriting change. So that, that’s where the premiums would, would potentially be changed.

So I mean, but if if I come in and I say, look, you’re fully protected. You’re just fine. Rock on. I’ve actually done that before. I had a contractor that I looked at his, his book of business and everything. I said, look, you guys are in a really good spot.

You know, here’s a few little tweaks, but I don’t think they’re mandatory. So, and that, that can happen. That’s just fine. That’s great. That’s a great service. Okay. Um, so the second part is just choosing the right broker.

Hire The Right Insurance Broker

It really does matter who you hire, right. And I hate to say that, but there are a lot of people that just sell insurance and don’t understand the intricacies. I mean you’re all understanding trying to teach people the nuances of coverage. I think that’s phenomenal. I think that’s really, really great because there’s a lot of brokers out there that are selling product effectively just selling a policy.

So choosing the right program. The question I always ask my clients is has your agent read the policy? Like honest to goodness, have they sat down, these policies are long, like 48 pages long. Right. So have they actually sat down and read the policy and you know what, 75% of agents I would tell you no.

That’s from my perspective sent yeah, I should say 100%. But yeah, 75% of the vast majority of agents don’t read the policies. So from an education standpoint, how does the policy actually become, you know, get into existence generally the way it works is an agent or a broker will sit down on the website with some basic information about the client and input all that information on the website.

I mean it’s an underwriting form, how many cars do they have? How much revenue do they do, what buildings, you know, didn’t own? And then you check the box, bam, bam, bam and you go through and then you submit that for a quote from the carrier and then the carrier will say yes, we’ll bind it for that particular amount.

Usually it does not result in an actual policy that’s provided to you that you then go read and that you then go understand which kind of is mind boggling. If you think about that. Like you just sold a policy that you don’t even know the intricacies of the working on. So on the coverage side of things.

When I litigated cases, I mean I’ve litigated case in state and federal court and 9th circuit and eighth circuit. So I litigated cases all involving insurance coverage interpretation of policies. I’ve literally focused on individual words. I mean when you’re talking about commercial general liability policies, business risks, umbrella, all that different types of stuff.

Insurance Policy Documents

I focus on very, very nuanced details of how those policies are interpreted and then we get to go fight those in court to understand what those mean. Here’s a mind boggling thing. Insurance companies hire lawyers to write coverage opinions about their policies that crazy.

So insurance companies literally don’t know how to interpret their own policies. And so I did that for. I’ve, I’ve written thousands of coverage opinions, interpreting policies for carriers. So now on the planning side, when we go in, I can say, look, I know how that policy is going to be interpreted because I’ve litigated that particular provision in the 9th circuit. It almost doesn’t make sense that the insurance company have to hire someone to interpret their policy.

Exactly. Right. That’s crazy. Yeah, it really is. But you know, so that’s why I think it’s important like yourself included, like people that are like gurus on, on the weeds, you know, like we get to be insurance nerds right?

Right. And, and it’s fun. It’s interesting to me because we get to understand, you know, how to make it all fit. It’s a puzzle to me. I think it’s fun. Yes. And you know what, I hate insurance commercials and the marketing that these insurance companies do, right? Because that’s all it’s about.

People call us up and say, hey, give me the best rate, right? And I can’t stand that. And that makes us the same as every other insurance agency out there and I don’t want to be like that. Exactly. I want to be someone that can really educate you and make sure that you feel comfortable, I feel comfortable when something happens.

You’re good 100%. Again, that’s the whole idea of people spend a lot of time to build their business, but they’re not spending a lot of time to protect it. And so sometimes when they start thinking about protecting it, it gets really crazy and the nuances, no one wants to read that 48-48 page document.

Again, that’s why we exist. I mean that’s why we do what we do to understand those intricacies for them. And just one of the things I always say is you focus on your business, I’ll focus on protecting it. I love it. Yeah. So, and the last thing is in terms of establishing the coverage, it’s documenting your expectations.

So that’s a really important piece that we do as part of a risk audit. That I think is incredibly valuable. That I don’t, I don’t think is done really at all. So what that, I mean by documenting your expectations. There’s a concept in insurance law called reasonable expectations.

So it’s a judicial policy where you can actually modify or reform the policy through the court. Okay? So imagine that you go through this process, the risk audit and imagine you hire the right broker and then still the insurance company denies the claim for whatever reason. And they say, hey, I’m not going to cover that.

Setting Expectations

If you’ve done a good enough job on the front end to document your expectations, you can actually go through and file a lawsuit against the carrier for our coverage. It’s called declaratory judgment action and you can ask the court to judicially modify or reform the policy to fit your reasonable expectations.

Yeah. So those are hard cases to prove right because usually people say, I just bought the policy, I don’t even think about it. But if you have and what we do as part of our risk audit, as we write a letter and say, here’s what the insurance primary businesses here and we literally right and like an underwriting, work up for the carrier and submit that to the carrier as part of the initial claim, that part of the initial policy.

So hypothetically say claim comes up that gets denied, guess what’s in the underwriting file? It’s an expectation. Yeah. I mean, literally there’s a document in there that we can say, oh, by the way, on such and such day, we wrote this out and this is what was expected.

And if the carrier doesn’t rebut that at the time it’s submitted or doesn’t argue with you as to the specifics that you wrote in there, then they’re going to be in a hard position to say, no, we’re not going to cover this. So that tees up the last part of this and that and this, you know, third part of it is, is this idea of what do you do if the insurance company actually is wrong?

Right? Right. So what do you do in the circumstance where the carrier denies? And that’s, that’s where we’ve litigated thousands and lots and lots of these claims. So there’s two pieces to every insurance policy, number one, there’s coverage, right? So that’s the contractual peace.

What does the contract actually say. But then on top of that, if the insurance company doesn’t treat you fairly, if they don’t take their interests and, and make sure your interests are above theirs, right, they’ve got to make sure that, hey, I’m selling you a policy and you’re buying it for peace of mind, if the insurance company acts unreasonably, then they’re completely avoiding that peace of mind.

I mean, it’s just gone. So in that circumstance, that’s a claim called bad faith. So, and when you do bad faith, it’s actually really cool in Arizona, Arizona is very friendly to help insurance. So you can make a claim for the contract damages, which includes attorney’s fees and you can make a claim for the tort of bad faith when the insurance company isn’t treating you fairly.

So that’s, that’s basically how we keep the teeth on the carrier. Right? Is we make sure we plan it really, really well. And if they try to do something funny down the road, we say, look, not only are we going to make a claim for the contract and the contract is going to provide coverage for what we’re asking for, but we’re also going to now make a claim for bad faith, which is extra contractual damages more than the policy would actually provide for in that circumstance and including attorney’s fees. So it really does.

It’s kind of a holistic approaches. We, you know, start from the beginning, understand the risks, build the risk, make sure we understand the policy that fit with those risks, build the legal infrastructure to make sure that all that’s protected and in the event that the carrier still does something wonky and the event they still deny the claim or making life difficult.

Then we have the bad faith claims and so the shop that we tried to build here is is literally managing all those claims from start to finish and they’re not not even claims which is policy expectations and part of our practice, like I said, it’s not just the insurance but it’s also the transactional part.

So if we need to modify contracts, agreements, you know, subcontracts anything like that to fit with the, with the insurance policy is great. I just did that today for a client. Alright, so okay. Yeah. So that’s kind of my, you know, free overarching ideas for commercial insurance to make sure that there’s adequate protection and there’s adequate opportunity to ensure that protection is going to be there for the long haul.

Okay, I love it. This is all super interesting to me. I know for a lot of people it’s over their head. But long story short, if you’re a business owner and you have an awesome business that you built, you need to make sure it’s protected. Ryan can help you with copper canyon law group will put his information below.

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