You may have an insurance policy, but what about the side agreements? In obtaining basic workers compensation and general or auto liability coverage, policyholders of all stripes may be required to sign such things as Deductible Security Agreements, Payment Agreements for Insurance and Risk Management Services or Cross-Collaterization Agreements. Often, these “agreements” are presented as part of creative premium programs which transfer risk (and claim costs) back onto policyholders (“side agreements”). Call them what you will, but side agreements can lead to large losses and tie up credit. They also generally are subject to limited, if any, state insurance regulation.

In the attached discussion of side agreements, John Nevius, a shareholder and member of the insurance recovery practice in the New York office of Anderson Kill & Olick warns: “Make no mistake, side agreements are not part of the insurance policy and may not be approved by state insurance authorities or subject to standard legal protections for policyholder consumers. In fact, these side agreements may seek to turn such protections on their head.”

Nevius calls the numerous disputes relating to side agreements that he and his colleagues see at Anderson, Kill “Monster Sightings.” Nevius explains that these disputes generally involve so-called earned premium or retrospective premium programs. All types of other liability coverage, particularly so-called fronting policies may be impacted as well.

The article goes on to explain how the insurance mechanisms used often skirt existing regulatory and legal protections, recommends a number of actions policyholders can take to avoid drawn-out litigation, and outlines the position the majority of courts have taken in litigation that has ensued.