Purchasing the “right” amount of coverage is not possible. There is a tradeoff among the availability of coverage, the price of coverage, the company’s other financial resources, projections of how much a single claim and accumulation of claims might cost, and a number of other factors. Learning what one’s peers are doing can be helpful, and the broker Marsh annually publishes a study, most recently “Limits of Liability 2005: Balancing Price Against Need,” that reports on insurance-purchasing trends of businesses.
The insurance industry long has inculcated the belief that, in the policyholder’s time of need, the insurer will be a steadfast source of protection, compensation, and prompt relief. Over the past couple of months, close to a quarter million policyholders have turned to their (federally backed) flood insurers and filed claims under flood-insurance policies for losses from Katrina, Rita and Wilma. There are nearly 100 insurance companies whose write-your-own (WYO) flood-insurance policies are backed by FEMA, and FEMA – amazingly, alarmingly – has told those insurers to stop paying claims.
Seemingly in anticipation of the expected deluge of coverage disputes arising from Katrina, Rita, and Wilma, the Second Circuit released a careful opinion in a case where rain damage resulted from wind-caused openings in a building. The precise issue concerned application of a “wind deductible,” but the decision sweeps more broadly in addressing the methodology for interpreting policies in determining covered causes of loss and the relevance of insurance-industry practice. Turner Constr. Co. v. ACE Prop. & Cas. Ins. Co. (2d Cir. Oct. 28, 2005).
Companies that make things need to get those things to their customers, and they face the risk of loss while the goods are in transit to the customer. Via contract, one can shift or retain the risk of loss during transit, such as having title pass to the customer once the item leaves the company’s facility or to wait until the customer accepts the item at its location. In addition to shifting to one party or the other the risk of loss via the sale contract, the company can obtain insurance to protect itself against loss. Recent cases have addressed both liability coverage – insurance against the risk of loss to goods for which title has passed to the buyer – and first-party coverage – insurance against loss in transit while title remains vested in the seller.