To borrow from Amelia Earhart, “preparation is two-thirds of any venture.”

Carefully assessing potential risks — and ensuring that appropriate insurance and personnel and other policies and practices are in place — are among the most important measures a company can take to mitigate against some of the greatest legal risks manufactures face. Yet, time and again we see business leaders take shortcuts with this preparation, only to end up in costly, protracted litigation.

This three-column series pools our collective experiences to tell you what manufacturing companies can do now to put into place appropriate protections and guard against legal problems before they arise. Over the next several weeks, we will address how to evaluate a company’s insurance program, strategies to risk mitigation and implementing solid employee relations policies to avoid litigation.

Does the company’s insurance program meet its needs?

An obvious starting point in any discussion of effective risk management is insurance. And while most manufacturers purchase several lines of insurance, it is our experience that a number of manufacturers do not regularly reevaluate their insurance needs. We recommend that companies regularly review their existing program, with an eye toward the past (to assess the most prevalent source of claims) and toward the future (to assess potential future exposures based on planned growth, new product lines, and legal developments). A periodic insurance audit should result in a more effective renewal process and insurance program more carefully tailored to the company’s needs.

When beginning an insurance audit, consider the following types of questions and issues, as a starting point for effective discussion with insurance brokers, counsel, or both. These points go beyond the general (and more usual) consideration of the adequacy of policy limits, policy language, trigger issues, exclusions, products completed issues and batch clause issues.

1. Claims history and risk assessment. The company should review its recent claims history, including claims based on employee relations issues. Identify the areas of greatest legal risk, which will aid in the evaluation of areas of exposure that might have been overlooked during previous insurance renewals.

2. Current and future operations. What are the contours of manufacturing operations? Does the company intend to expand and, if so, where and how? If plans include acquiring stock or assets of another business, due diligence should go beyond the usual products liability questions — it should include insurance and indemnity. The company should consider how any indemnity arrangements will work, and whether they will be enforceable as a practical matter after the purchase (e.g., are there dollars to back them up). The company should obtain a copy of the target’s insurance policies that may respond to any claim – and keep them so that it may tender new claims. Last, the company also should consider whether and how the policies being renewed will offer coverage for a newly acquired business.

3. Outsourcing Issues. The insurance implications of doing business abroad can be complex. To the extent the company is manufacturing its products in any other country or otherwise outsourcing, evaluate whether a policy written in the United States will provide coverage abroad, and whether the law of the jurisdiction(s) in which the company is doing business imposes any additional insurance requirements (many do). The penalties for failing to comply with some countries’ requirements can be quite severe.

4. Named Insureds. Who are the intended insureds under each policy? If the company has subsidiaries, are they intended to be covered under the policies, or do they have their own coverage? Does the company use the services of independent contractors? If so, consider whether they should be covered under EPL, D&O and/or CGL policies (the answer is not necessarily “yes”). Do vendor or other contracts require the company to provide insurance coverage? If so, the manufacturer should ensure that its “Additional Insured” endorsements are correct and that the policy otherwise satisfies its obligations to those third parties. By the same token, if any of the manufacturer’s contracts require another company to provide insurance, the manufacturer should obtain copies of the relevant policies – with endorsements – with every policy period.

5. Duty to defend and retentions. Most general liability policies require the insurer to defend the company against lawsuits. Manufacturers in certain sectors that face repeated litigation in which litigants claim high-dollar value catastrophic personal injuries or assert high-dollar value property damage claims might prefer to control the defense. An insurer might be willing to permit the insured to control the defense, subject to certain conditions such as defense counsel or a third-party administrator periodically updating an assigned claims adjuster on the status of all litigation, and/or a large self-insured retention for each occurrence.

Thoughtful consideration of these types of questions should guide an effective evaluation of the entire insurance program, and help determine whether it meets the company’s existing and anticipated needs during the next policy period.