Insurance. You may not consciously think about it very much, but you should. Your clients count on you to do so, even if they don't realize it.
Insurance is essential, ubiquitous and often a critical, if not dominant, consideration in every human financial activity. It affects even the most quotidian decisions business owners face: Do I need business interruption coverage? Are the coverage limits on the company auto policy sufficient? Is that contractor bonded and insured? If our CPA messes up the taxes, what's my recourse?
For a lawyer, insurance looms large over every action you perform, particularly if you represent business owners. The existence and details of insurance coverage—whether protecting them directly or available to them from third parties—are inextricably linked to the services you provide, and the claim process is an inseparable part of that coverage. It's within that claim process that friction exists between the publicly stated purpose of insurance coverage and the actual financial goals of the insurance companies.
A little background is in order.
While our firm's experience is centered primarily in Texas, the impact of insurance on commercial activities in every state is parallel, as is the unavoidable tension between insurance interests and those of other businesses. Also, unless you and your clients conduct business in just a few upper East Coast locales, most insurance companies you deal with will be from other states.
As an illustration of this phenomenon, consider that the National Association of Insurance Commissioners report, State Insurance Regulation in Texas: Key Facts and Market Trends, reflects that of 2,040 insurance carriers doing business in Texas in 2021, only 412 had a physical office in the state.
Does this make a difference? Does being a part of a local business community and doing business in the state of one's domicile impart some concern for that community's well-being? Perhaps, perhaps not. Certainly, however, nearly 80% of carriers writing policies in Texas – and likely a similar percentage in your state, would have no way of knowing. They are not local, and their concern for the local business community is confined to the premium dollars flowing away from it and in their direction.
Just how pervasive is the insurance enterprise?
It is an industry accounting for more than 7% of the world's economy, and it is no less a significant portion of the United States financial picture. In 2021, net insurance premiums were $1.4 trillion, 53% for property and casualty coverage. The US workforce includes 3 million people working in the insurance industry, with more than 1.6 million employed directly by insurance companies.
Now and historically, insurance has held enormous sway over political and legislative processes in the United States. For a detailed analysis of insurance interests' role in our country's transition from a set of British colonies to an independent nation, see Underwriters of the United States by Hannah Farber, University of North Carolina Press, Chapel Hill, NC, 2021.
During the latter part of the 18th century, the ground rules for conducting business in the developing nation were set out in the lex mercatoria, or "law of merchants," an unenacted but "revered body of rules, customs, and best practices" cited as authority in governing marine and other insurance contracts of the 18th century. "[R]elentless centralizer Alexander Hamilton … had the federal republic fixed in his sights but the 'laws of merchants' in his back pocket." (Ibid.,p.16,17)
As valid today as a quarter millennia ago is Ms. Faber's contention that "[i]nsurers' abilities to intervene in political and legal affairs both at home and abroad were essential to their continued success." (Ibid.,p.23) The time-tested method for bringing one's desires to bear upon political and legal affairs? Lobbying. And insurance lobbying is massive.
According to OpenSecrets, a nonpartisan lobbyist watchdog group, the US insurance industry shelled out $153 million in 2021 to influence lawmakers. The following year, it upped its game to $160 million.
Lawyers and their business clients depend on the insurance industry to safeguard them from any expected perils of commercial activity, from lawsuits to hail damage and business interruption to employee dishonesty. Your clients invest in insurance to protect their livelihoods, and they have a right to expect returns from the insurance company in response to a notice of the loss.
Advertising jingles aside, insurance companies are in business to turn a profit, and to do so, many have developed strategies to reduce claim payments to avoid a drag on their bottom lines.”
The claim process—the method for accessing policy benefits—is central to conducting business successfully. If the insurance company fails to honor the obligations it assumed when it issued your client's policy, your client's business suffers over and above the damage triggering the claim in the first place.
And there's the rub. Advertising jingles aside, insurance companies are in business to turn a profit, and to do so, many have developed strategies to reduce claim payments to avoid a drag on their bottom lines. When carriers cut those checks to lobbyists or send contributions to legislative, congressional and—in states where judges are elected, like Texas—judicial campaigns, whose interests do you think they seek to protect?
Not only that, but these (mostly) out-of-state carriers circumvent the judicial consequences of laws designed to safeguard insureds by keeping cases out of the courtroom. For example, in the 2022 case of Overstreet v. Allstate, the Texas Supreme Court was primed to rectify a decades-old lower court ruling incorrectly construing Section 554.002 of the Texas Insurance Code, and level the playing field between claimants and insurers. In that case, the insurance company wielded the power of the purse to settle the claim out of court, depriving the Court of jurisdiction to issue an opinion.
Businesses across the nation are waking up to this friction. Google the phrase "insurance recovery" and see the number of large corporate law firms that incorporate this niche into their practice offerings.
As lawyers representing businesses other than insurance companies, we must be aware of the inherent conflict of interest between our clients and the carriers they rely on. Insurers have a long history of successful efforts reinforcing that reliance while failing to meet their obligations under the policies they issue. And the financial clout they bring to bear against other businesses' interests is vast. It will require a continual and collective effort to achieve something like balance in the scales of justice.
Marc Gravely is the founder of Gravely PC, a Texas-based firm devoted to insurance claim and construction defect disputes on behalf of businesses, homeowners associations and related organizations, and governmental entities.