Some Pitfalls in International Insurance Programs – What I call the “gotchas”

The “gotchas” that I regularly see when reviewing international coverage there are assumptions made about who is covered under what insurance policies.

There can be significant confusion about who is an insured on a subsidiary’s policy and on an international parent company insurance policy. This can change from country to country and I will address the primary issues in the United States.

In order to be covered under a liability policy, an entity must have insured status under that policy. This can be as a named insured, an automatic insured or as an additional insured.

Automatic coverage for corporations in the United States for insured status covered by a Comprehensive Liability Policy is noted below. This is different for individuals, partnerships/J.V., LLCs, Trusts.

  • The organization
  • Stockholders*
  • Directors*
  • Executive Officers *
  • Employees and Volunteer Workers *
  • Real Estate Manager
  • Newly acquired or formed organizations, except a partnership, Joint Venture or LLC, for 90 days

*only for the performance of the business of the organization or their duties for the                                organization

Nowhere in the wording is there coverage for a parent company being covered under a subsidiary’s policy. An international parent company can only be insured on their subsidiary’s insurance policies for the claims arising out of that subsidiary’s operations. This must be endorsed manually on most insurance companies’ policy forms and is not automatic.

What is the big deal? Usually the Parent company has their own insurance program covering them in their own country. That is true but there are several issues that create needless costs for the organization.

  • Does the Parent Company’s insurance policy respond in the United States for defense of lawsuits?
  • Is there a self insured retention under the parent company’s policy including defense costs that is larger than the subsidiary’s policy?
  • If the lawsuit is the result of the subsidiary’s operations and the parent company is named in the lawsuit along with the subsidiary (this happens routinely in the USA), what is the cost of obtaining a summary dismissal to remove the parent company from the lawsuit?

Not paying attention to these issues or analyzing them appropriately can create confusion and costly actions to respond for both the subsidiary and the parent company. The process of endorsing the parent company on the subsidiary’s insurance policy removes the confusion of who responds to the lawsuit, having a unified and consistent defense, having one self insured retention rather than two.

Typically in the USA a zero self insured retention is not unusual. Also, there is no confusion about policy territory and who will respond.

Paying attention to these “small details” can tailor an insurance contract to effectively respond to allegations of negligence and usually is at no additional cost.

This is just one part of an overall evaluation that we do at JKJ and JKJ&H International for our clients. It comes from having the experience in many types of international client transactions around the world. The focus is avoiding the”Gotchas” in your international risk management program.

Author: John Wright, President, CPCU, CIC, JKJ&H

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