Checklist for Insurability

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Lawyer John Pendleton highlighted three essential steps business leaders need to take to be prepared to handle loss.

First, they must establish a communications system. Before any problem occurs, a CIO needs to have a communication system in place so when it looks like a failure has occurred or if a company is getting major complaints from a client, he or she can easily notify the company's risk manager -- CFO, in-house counsel or someone used to handling claims.

'If a company goes into fix mode right away, it may have already compromised the coverage,' he said.

Second, companies should notify their insurance broker. It is critical to get the broker involved so that together they can notify the insurer of the potential problem. Whether it is technically a claim or not, CIOs should loop brokers in sooner rather than later to prevent actions that would nullify the coverage.

'The insurer can say the company made a voluntary payment and won't pay what was spent to fix the problem. The broker can make sure coverage is utilized properly and act as an intermediary,' explained Pendleton.

Third, company officials must contact the coverage counsel. It is never too early to contact coverage counsel to make sure the company is positioned properly. But Pendleton advises CIO's not to let the insurer know that coverage counsel has been contacted too soon in the process.

'That raises a red flag to the insurer, who may try to find reasons not to provide coverage. However, counsel can at least give advice in the very early stages of a potential failure.'