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Winding Through The Insurance Maze

By Brian K. Carvell, Esq. Originally Published in DRUM! Magazine's Amy 2006 Issue

It’s true what they say — the devil is in the details. Well, today we’ll let you in on an important “detail” when it comes to negotiating an insurance agreement.

Every touring band should have some form of liability insurance (of course, I say that from an attorney’s point of view, understanding that bands may not be able to afford insurance — but purchase it if you can). Legally, insurance is a “transference of risk,” which means that in exchange for a price (the premium), the insurance company will step in and defend you and pay any damages should an accident occur (but only up to your policy limits and only if the policy terms cover the circumstances surrounding the accident/injury). For example, assume Tommy Lee threw a drumstick into the crowd for some lucky fan at the end of the concert. Instead of catching the stick, the fan gets hit in the eye with the tip, causing a loss of vision in that eye. If that fan brings a lawsuit against Tommy Lee, and if Lee has liability insurance, his liability insurance carrier will step in and defend him and pay whatever damages that are determined to be related to the injury.

Now for the important part. When you purchase insurance through a broker, you basically lay out everything you want to be covered. Then the broker shops what you are looking for to different insurance companies. At this point, all terms of the insurance are negotiable (but keep in mind that everything you want covered will cost you). One thing that sneaks by a lot of people is whether defense costs are “within” or “in addition to” your policy limits. The better policy is the one that is “in addition to” limits.

An example is the best way to demonstrate this point. Johnny X purchases liability insurance for his band’s tour, with policy limits of $1,000,000. A fan at their show gets injured while watching the band and brings a lawsuit against X. This insurance company agrees to defend X and hires an attorney (who bills the insurance company for the “defense costs”). If X’s policy states that defense costs are “within” limits, any fees paid to the attorney will erode X’s $1,000,000 limits (and once that money is spent, the insurance company won’t pay any more). If X’s policy is “in addition to” limits, the defense costs won’t apply against the $1,000,000 limits, and the company will continue to pay until damages in the amount of $1,000,000 have been paid out.

Defense costs are often hidden within the agreement. Make sure that you specially ask about these costs before purchasing. It’ll be one less devil that is hiding in the details.

This article is not intended as legal advice. If you have specific legal concerns, I recommend you personally contact an attorney.

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