When alleged errors or breaches of duties give rise to professional or management liability claims, renewal premium increases are likely to follow. Policyholders often push their brokers to remarket the account in pursuit of more competitive pricing. The question is: Should insurance programs be remarketed to avoid any post-loss premium increase?
The answer is often "no" (as long as the carrier is acting in fairly good faith and the increase is reasonable). Doing so is often penny wise, pound foolish.
Here's why:
If the carrier has tendered the claim, they are demonstrating good faith by doing so (particularly if it's a claim that falls in a gray area). The fact that they are willing to offer renewal terms is additional testament to that good faith. It's uncertain whether another carrier would have taken the same coverage stance or been more aggressive in disclaiming coverage. Brokers and policyholders are better off working with insurers that have demonstrated their willingness to stand by them. Additionally, if the client has built a long history with this particular insurer and coverage is replaced, the client is effectively beginning a new relationship.
Even if the carrier has only shown partial good faith, covering only a portion of the claim (while disputing coverage for a portion of what should be covered damages) it may still make sense to renew coverage. In such cases, brokers (and the insured's counsel) may wish to challenge the coverage decision. When making such challenges, policyholders are likely to encounter less abrasion when coverage is still with the insurer in question – those who elected to replace coverage immediately following a claim may encounter greater resistance.
It's important to maintain a good relationship with the insurers during the claims process. It's not that replacing coverage will necessarily change the insurer's coverage determination, but it could make the claims process and any coverage determinations for future related claims more contentious.
Replacing coverage also leaves open the possibility for errors. Strong directors and officers (D&O) programs are often built over time, and rounds of policy term negotiations. Any enhancements obtained will need to be carried over to a new carrier. Errors such as incorrectly applied retroactive dates, advanced prior and pending litigation dates, overly broad related claims clauses or specific matter exclusions, and unaccounted for subsidiaries, are just a few examples of very basic general errors that can occur when replacing coverage, all of which can have a crippling effect.
As a practical matter, replacement can also have unintended coverage consequences. Take the following example: An insured maintains a D&O policy, in which the 2024-2025 term is with carrier "A". A claim is noticed to the D&O carrier during that term, and the carrier has agreed to tender coverage. Shortly afterward, the carrier provides a renewal with a 35% increase, which prompts the insured to replace coverage for the 2025-2026 term, issuing a new policy with carrier "B". Months into the new term, the organization receives a new, separate demand, which is tendered to the new carrier. However, the new carrier has determined the allegations are similar enough to the prior litigation, and per the policy's terms (which will very likely include a specific matter exclusion), the new carrier disclaims coverage because it is "related" to the initial claim the year before. Carrier "A," however, has determined that the two claims are not related, and also disclaims coverage. Such a situation sets the grounds for an obvious battle.
These are just some of the many considerations brokers and their insureds should consider prior to making premium-based decisions, which may be more harmful than beneficial. That being said, there are situations in which it may be prudent to consider another carrier, namely: if the carrier is perceived as being overly contentious with what should be a covered claim, if the renewal terms being offered are more restrictive, or if the renewal premium is unreasonable.
