It’s becoming a more and more frequent practice for insurance companies to include a benefit-cutting clause in business insurance policies. What is this? In the past, business insurance policies generally instructed the insurance carrier to cover the entire cost of legal fees and related expenses, even when only part of the claim was covered by the policy. However, several insurance companies have begun putting “allocation” or “relative legal exposure” clauses into the fine print of their policies.
These clauses require the carrier and insured to use their best efforts to determine a fair allocation of payments between covered and uncovered claims. The insured then becomes responsible for covering the legal costs allocated to uncovered claims.
These allocation clauses reduce benefits and can potentially open the door to disputes over what is a fair allocation, which in turn may lead to costly litigation. So, be sure to check the fine print before signing those business insurance policies. You may end up paying more than you think in the long run for less coverage.