Do you understand your insurance?

This week, IP Draughts has had several conversations with insurance brokers. First, to renew his firm’s professional indemnity insurance for another 18 months – a relatively straightforward task. In the early days of Anderson & Company, this was the single, largest item of expenditure that the firm had, and negotiating a good deal was very important. It is still important, but the costs are now dwarfed by other overheads, including those involved in employing 10 people, renting premises, and managing and renewing the IT infrastructure.

His other conversations with insurance brokers were on behalf of a university client that wished to understand what cover it had for its technology transfer activities. Over many years, IP Draughts has learnt that conversations of this kind have a high risk of mutual misunderstanding. Several factors increase the risk:

  • the client doesn’t understand the insurance market or its policies
  • the insurer doesn’t understand the client’s activities
  • the broker has a partial understanding of both; they try to be helpful but they are not usually contract law specialists, and don’t always have an iron grip on the meaning of the policy
  • sometimes, communications have to be routed through a university insurance manager, whose understanding of the detail may also be partial
  • terminology used in the insurance market is not always the same as that used in contracts, e.g. with respect to terms such as indemnity, hold harmless, and warranty; this increases the scope for mutual misunderstanding when trying to have a detailed conversation
  • it is sometimes difficult to speak to the right person within the insurer – usually a “back room boy” who understands the minutiae of business risks policies but is rarely a client liaison person

If you are responsible for “signing off” on the liability terms of university TT agreements – including licence agreements and spin-out investment agreements – don’t you need to have an accurate understanding of which risks are covered by your institution’s insurance policies? Doesn’t this affect which terms are considered deal-breakers and which can be (however reluctantly) accepted?

Discussions with this client’s insurers are ongoing. IP Draughts has had these conversations before, and nothing in the present interactions is particularly surprising. This is a complex subject, where people often make wrong initial assumptions, and it takes time to dig into the detail.

A general question for you. Which of the following legal risks are covered by your institution’s insurance policies?

  1. Warranties and indemnities given in licence agreements.
  2. Warranties and indemnities given in investment agreements.
  3. Liquidated damages and penalty clauses.
  4. Negligent performance of research resulting in inaccurate “know-how” being supplied under a licence agreement.
  5. Product liability claims by an injured customer (who may not have any direct contractual relationship with your institution).
  6. Risks of claims against your employee who acts as a nominee director in a spin-out company.

If your answer is “some” or “all”, a supplementary question is which of your institution’s insurance policies cover, and which exclude, these risks? Candidates include:

  • public and product liability policy
  • professional indemnity policy
  • clinical trials policy
  • directors and officers policy

Knowing the answers to these questions will depend on a close scrutiny of the wording of the policies, and will probably involve discussions with insurers. Not all policies are the same and making general assumptions is dangerous.

Answers on a postcard, please, addressed to IP Draughts at Jumping-to-Conclusions House, Muddy Waters Lane, Hazardville, Connecticut, USA.

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