Why Policy Endorsements Need to Be Your New Best Practice

Joey Giangola: Mr. Jim Skarzynski. How you doing today, sir?

Jim Skarzynski: Great. How about yourself, Joey?

Joey Giangola: Jim, I'm doing all right. I'm doing all right. I want to know this before really getting anything too serious. Is there anything in the day-to-day life that you maybe find yourself wishing you were a little more careful with?

Jim Skarzynski: Wishing I was a little more careful with? Gee, I don't know. It's a good question, a philosophical question I haven't thought that much about. Probably trying to squeeze a little more fun into the day and not always to sweat the little details, if I were to say one thing. We just got back actually, my family with our daughter's family and two little granddaughters, down in Puerto Rico during their winter break for President's Week and had a nice time. Was able to kick back and get away from things and not sweat all the little details. So that'd be one thought that comes to mind.

Joey Giangola: Yeah, definitely. Definitely. For me, Jim, I think it's everything. I take the approach that things are made to be used and I wish I could just have a little more respect for just things in general. So maybe it's something I should look into in my older age, but you never know.

Joey Giangola: I want to move things over to the world of insurance, Jim, and really talk about your day-to-day work and what you see most often and how insurance agents aren't always maybe as careful with certain things as maybe you might see them to be.

Joey Giangola: What experience have you had dealing with the legal side of insurance where agents maybe only deal with when things go bad, claims and things like that? Where do you see agents maybe not being as careful as they could?

Jim Skarzynski: I would say, and maybe just to give a little context for my answer, I graduated from law school in 1977 and have practiced essentially, exclusively in the insurance coverage area since that time. Heavily focused on director and officer liability, some cyber, some other things, but the larger corporate problem. Although, there's also been some nonprofit, large nonprofit claims, some large employment claims, other things along the way. So by the nature of what I do, I tend to see in terms of when my clients, the insurance companies, typically as opposed to the insurance broker are retaining outside counsel, it tends to be on the more difficult situations and situations where maybe something has gone wrong or else there's some significant exposure.

Jim Skarzynski: One of the pieces of advice I would offer to the insurance broker from the perspective of sometimes seeing things when they go wrong is the importance of if there are manuscript endorsements, bespoke endorsements, take into account some unusual aspect of this risk, some relatively esoteric coverage request, the importance of spending enough time to get the wording properly written. I'll be the first to say it's easier said than done to follow that advice with the pressures of the day, the economic constraints of how much time can be spent on an endorsement on top of everything else in getting a submission finalized and the policy issued. From time to time, I have seen situations where the wording probably did not fully convey the intent of the parties, and it's not that anyone was trying to do something improper or pulling a fast one. Maybe this wasn't a meeting of the minds. Maybe a little bit more work at the front end can save a lot of headache later.

Jim Skarzynski: One piece of advice I would, in this regard, offer, and I don't typically do policyholder work, so this is not advertising. I represent the insurers, not the brokers or the policy holder. If there is, on more a broker facing a more complex risk or perhaps it's the placement of a policy coverage that they're not real familiar with, they don't work day to day on, that it might be worth considering having a policy holder council or an expert on that type of a wording issue. Take a look at the endorsement, make sure everything was thought through, so that if a claim arises, the policy holder gets the coverage that they expected and that they paid the premium for.

Joey Giangola: That's interesting. Like you said, primarily representing the insurance company, is there something that you see from their perspective that they maybe wish an agent would, whether it's in the policy language itself, is it in the endorsement, is there maybe a guideline for them to follow in terms of to avoid from you being in a situation where they might need to be involved? What can we do to bridge that gap, I guess maybe?

Jim Skarzynski: I think one thing would be if there is something unusual in the risk and the need to have a manuscript endorsement to cover the risk, that all sides, the broker, the underwriter at the insurance company, the client, they all understand what the request is, what the nature of that risk is that insurance is being sought for, and what are the parameters or perhaps the limitations of how far the insurer is willing to go in terms of addressing coverage for that risk. In certain situations, it's to make sure there's been enough conversation, and I think quite often there is. I think I'm talking about maybe the outlier situation as opposed to that this is a constant issue, but that everyone thinks it through and spends time to make sure that the endorsement wording correctly reflects the intent of the parties and the scope of the coverage being afforded for the potential loss that could result from this problem.

Joey Giangola: You mentioned it might be something that might be a little over reactionary to the whole thing. Is there maybe a little mini checklist that you would have for them to gauge the severity of the endorsement and whether or not they need to spend more time? Like you said, maybe just relaxing a little bit?

Jim Skarzynski: I don't know if it is exactly subject to a checklist. I would say it maybe is more of a, you might know that situation when you run across it, that it's something unusual. Not that it's not the type of endorsement put on the policy every day, it's a manuscript endorsement and it's covering somewhat of an unusual situation.

Joey Giangola: Yeah, I guess maybe red flags or something that might stand out to them to where they might be walking into a sticky situation, might be a different way to phrase it?

Jim Skarzynski: It might even be if there's one of your colleagues in the shop and briefly give an introduction to what we're trying to do, and do you think this endorsement wording covers the risk and have someone else just maybe take a look at it? Again, depending on the circumstances that this line of business. We had a request from our policy holder client to do such and such, what do you think this endorsement provides coverage for? Maybe just to bounce it around a fresh set of eyes to take a look at the endorsement wording can often be helpful.

Joey Giangola: Do you think there's maybe a fundamental misunderstanding in some aspects from where the agent is coming from to the insurance carrier? Is there a disconnect in that regards to where you're seeing as you're defending them on certain cases where there just maybe is a little miscommunication?

Jim Skarzynski: I think generally not. I operate from the philosophy, and I think many of my clients, the insurance companies, do as well, that the real product being sold by the insurance company is the servicing of the claim. The policy holder needs to have the protection. The broker goes out to procure that protection in the form of the insurance coverage. Where the tire really meets the road, is that if you now have the claim situation, the product now is really coming into play, which is the servicing of the claim.

Jim Skarzynski: I've seen over and over through the years that I think an active line of communication between the broker, the policy holder, the defense counsel, assuming that this is a litigated claim, the insurer, and if it's a complicated situation, if there might be policy holder counsel in addition to defense counsel or coverage counsel assisting the insurance company and the resolution of the claim, for there to be a dialogue among those parties and communication along the way is I think very helpful.

Jim Skarzynski: One bit of advice I would offer your broker audience for them to encourage their client policy holder, that if this is seen as being a challenging claim situation, a situation that maybe has a few wrinkles on it or potentially has a large exposure, to try to have some candid discussions early on with the insurer. The idea that no surprises, and it is what it is. The insurer accepts the risk, knows that there will be claims otherwise, you wouldn't have this industry, the purchase of the insurance policies.

Jim Skarzynski: I think to the extent that there is early warnings so to speak, that this might be a difficult claim and here's why and exposures that we think might happen depending on how, let's say if it's in litigation, the rulings might come on a motion to dismiss or a deposition or what have you. I think it makes it a lot easier to get the claim resolved and to have a very solid commercial partnership among the policy holder, broker, and insurer through that type of dialogue.

Joey Giangola: Yeah, maybe take me inside that process. The insurer has the claim, they bring it to the agent, the agent then, everybody's on notice that this is happening, what does it look like when they come knocking on your door? What is that process like for you, and then how does it proceed throughout with the agent and the whole process? Maybe they might not see it on a day-to-day, most agents might not run across this, but walk us through that a little bit.

Jim Skarzynski: The situations I'm involved in are probably outside of maybe the day-to-day bread and butter, so to speak, claim process. There might be a little bit more of the outliers or the complex situations, but the broker of course would be providing a notice on behalf of the client on behalf of the policy holder to the insurer. The insurance claim professionals, if they would recognize a notice as being a potentially serious claim, or one where it's appropriate for a coverage counsel to be involved in, might call a lawyer such as myself to assist in the claim resolution process.

Jim Skarzynski: The coverage lawyer would be giving some advice to the insurance company, the underwriter, and the claims department regarding coverage issues that might exist. There would typically be a reservation of rights letter. Sometimes I think it is helpful, a company might preview a coverage position with the broker to give the broker a heads up to the extent that would be useful to set appropriate expectations by the broker with its client, the policy holder.

Jim Skarzynski: Sometimes I've seen, even with sophisticated insurers, a concern about a reservation of rights. Gee, are we going to have coverage for this problem or not, and not fully realizing that reservation of rights letters are standard, Under the law, it's important for the insurer to reserve rights so that potential coverage defenses aren't waived. That certainly doesn't mean that a covered claim is not going to be paid. I think particularly if a broker has an unsophisticated insured or it's perhaps their first large claim and they're very worried about it internally at the company, I think the broker can do a lot to explain to the management of that company. There's a process here. It's going to take some time. You'll get a reservation of rights letter. That's very typical and assist in helping to work through the problem.

Jim Skarzynski: Over the years, I think I've developed very good relationships with a number of brokers at different brokerage firms, different organizations. I think that the broker can be very instrumental in assisting both its client, the policy holder, and the underwriters in getting to a good resolution of the claim. I've seen many of my clients, the claim officers at the insurance companies, who have very good working relationships with the claims broker.

Jim Skarzynski: I think many of my clients would say it's certainly ideal, if not essential, to try to have those relationships and a store of trust and a solid working relationship so that if a difficult situation arises, the parties can work through it. I always think back to the mantra that the real product is the servicing of the claim, that otherwise, you have the sheet of paper, you have the theoretical protection, but where it really matters is if there is a claim situation and the claim is resolved, hopefully in a very professional fashion.

Joey Giangola: Oh, Jim, insurance agents might feel like, man, we never have to touch the real product then most of the time, because they don't see it that often if that's the case, because maybe they deal with one claim a year if they're lucky, or severe claim anyways.

Joey Giangola: I wanted to talk it to the coverage itself a little bit more maybe in terms of D&O where you spent your bread and butter, like you said. What do you see in terms of maybe it being discounted or not talked about enough? Do you see it given the proper respect within agents to have that conversation with people that maybe not even considering the fact that they might need a D&O policy or something like that?

Jim Skarzynski: There might be a mixture of it. Typically, in that I'm involved in larger claims situations with some of the very large brokerage firms, I think the broker, and generally speaking their clients, are quite aware of the importance of D&O insurance and including the importance of having what's called A Side insurance for the non-indemnifiable claim for a derivative suit, where the corporation is not permitted to indemnify the director or officer for legal fees that are incurred in connection with that claim.

Jim Skarzynski: There certainly are other situations where I think corporation might not fully appreciate the importance of having this insurance, or perhaps more specifically, to have the correct amount of insurance where the company, the policyholder is significantly underinsured and regrets it once the claim arises. So those are a couple of thoughts I have on that topic.

Joey Giangola: Yeah. Is there maybe a scenario that stands out to you in terms of that time, where the company was adamant they had enough coverage or they didn't want to hear anything about being too insured? Is there anything that you can give the agent in terms of a little weapon or story to give that next client that they're having that conversation with to say, listen, this happens and it's something to consider?

Jim Skarzynski: Yeah, and it does come up. This as an aside before trying to get to your question, Joe. I can think of one situation where a bad claim arose. It happens, and the insured company was clearly underinsured. The broker off the record told the insurer... I begged the senior management individual I was dealing with to get more insurance, and ironically, he was one of the defendants in the claim. It was a corporate loss that for the cost of a premium would not have occurred.

Jim Skarzynski: One suggestion to your broker audience would be that there are of course statistics available regarding, for example in the D&O area, the area I practice in most frequently, and I believe there are probably comparable statistics elsewhere, where you can see numbers on the frequency of security claims, class actions, and derivative suits, the frequency of these claims being filed against the companies, the average settlement values of the claims.

Jim Skarzynski: I think that data can help in providing some guidance to the broker about how to counsel its client, the corporation, the policyholder about adequate limits. I assume that probably most of your brokers keep some internal statistics about the amount of insurance that their insureds are purchasing and perhaps are tracking the size of the losses. I believe some of the large brokerage firms do that.

Jim Skarzynski: It might even be a suggestion if it's not unduly cumbersome for the mid-size or smaller brokers to try to track that information a little bit and be able to say that we've got the statistics and here's what comparably sized companies are doing. You might want to consider getting some excess insurance. If you couple that with the statistics that show these claims do happen, it might not be an everyday occurrence, but when it happens, you want to make sure you've got adequate insurance to cover the loss.

Joey Giangola: Let's say that if you had the opportunity to give your, I don't want to say pet peeve legal advice, but so for an agency or agent out there that isn't constantly counseling a lawyer, or maybe even for the larger agencies that do have somebody, whether they're on staff or constantly on speed dial it seems like what, what's a piece of legal advice or just overall guidance that you would feel would be warranted across the industry that you'd love to just get out there?

Jim Skarzynski: I think it would be certainly worthwhile for the brokers to consider here is the tower and if the amount of insurance that the particular company had was on the lower end of the spectrum, to certainly make an effort to say, I could get you another excess layer of three or five or whatever number of millions of dollars for such and such amount. This is a solid company, that if the advice is rejected, that there was certainly an effort made to have that insured have in the proper amount of coverage. So that, that'd be, I don't know, that'd be one piece of advice I would suggest.

Joey Giangola: All right, Jim, I've got three more questions for you, sir. The first one, very simply, what's one thing you hope you never forget?

Jim Skarzynski: One thing I hope I never forget? This is my day-to-day law practice. So many, many years ago, a wise, old lawyer told me that, when I was just starting out, that when you're on the phone with a client, no matter how busy you are or the distractions you might have, you got to focus your mind as if this is the only client you have, the only issue on your mind, and it's of the highest importance. I've never forgotten that advice.

Jim Skarzynski: I passed it on now. I'm not a young lawyer anymore to younger lawyers in our office. To really focus on that we exist because of our clients, and you could apply that whether you're a lawyer, an insurance broker, an underwriter dealing with a broker, all different walks of life, that we rely on our clients and never forget the importance of them to our success in our careers.

Joey Giangola: Now, on the other side of that, what's one thing you still have yet to learn, Jim?

Jim Skarzynski: There's probably a lot of things I have yet to learn. I try to do this, but I know I could probably do it a little bit better. To really, when someone is making an argument and whatever it might be, a mediation, a hearing that you might disagree with, to really think about it, try to see a problem from the other person's perspective, and to try to be in their shoes and what they're dealing with. I think by doing that, it can make the resolution of issues easier to accomplish.

Joey Giangola: All right, Jim. Last question to you, sir. If I were to hand you a magic wand of sorts to reshape, change, alter speed up, really any part of insurance, what's that thing? Where's it going and what's it doing?

Jim Skarzynski: Oh, gosh. Any part of insurance. I thought it might have been an easier question. I was generally like, end war and hunger in the world. In the scope of the insurance world that I deal with, I would say in the corporate D&O area, there has been an explosion of an escalation of defense expenses in these cases. I think to the extent that steps could be taken to streamline the corporate litigation process, reduce expense, perhaps have more meaningful alternative dispute resolution processes, it would be good for the insurance industry, I think it would be good for corporate America generally, that the litigation costs are just escalating, to try to bring that under control would be useful, also, very challenging to do.

Joey Giangola: Jim, this has been fantastic, sir. I'm going to leave it right there.

Jim Skarzynski: Well, thanks a lot. I appreciate the opportunity to speak with you and offer some thoughts to your broker audience.