Late notice of claims can result in denial of coverage and destroy an agent’s relationship with the insured. On claims‑made policies, timely notice is particularly important. There are several ways that retail agents and brokers can help insureds throughout the claim process.

For an insured, a loss is obviously a bad thing. But, for that insured’s agent, what’s even worse is a loss that’s not covered. One of the ways insureds may unknowingly increase the possibility of an uncovered loss is waiting too long to report a claim.

Timely notice of claims is an important responsibility for every policyholder—especially when coverage is written on a claims‑made form. Although most general liability policies are written on an occurrence basis, the majority of professional liability policies are issued on claims‑made forms.

This is certainly true of Directors & Officers, Cyber Liability, Employment Practices Liability and various types of Errors & Omissions Liability. This distinction is important because, in most states, the “prejudice” rule applies to late notice situations for occurrence policies but does not apply to late notice situations in claims-made policies. This means that for many claims-made policy situations, if the insured does not report a claim within the time prescribed by the policy’s reporting requirements, the insurer can deny coverage for the claim even if the insurer was not prejudiced by the timing of the notice.

BEST PRACTICE TO HELP MINIMIZE LATE NOTICE

To minimize the risk of losing coverage on the basis of late notice, policyholders can implement the following protocols:

• Read the policy
• Create a claim reporting protocol
• Create a communications protocol after giving notice

READ THE POLICY

The entire insurance policy document is important, but for purposes of timely reporting, policyholders should become familiar with the sections defining what constitutes a claim that must be reported under the policy and outlining the claims reporting requirements. Understanding the policy and the obligations it imposes on the policyholder is critical to deriving the full benefits of the insurance policy purchased by the insured. Policyholders should also consider enlisting the help of their retail agent or broker in understanding these aspects of the insurance policy at issue.

CREATE A CLAIM REPORTING PRO TOCOL

Once notice of a claim has been given to an insurer, a communications protocol should be established with the insurer as soon as possible. Establishing such a protocol and maintaining consistent, regular communication with the insurer can minimize, if not altogether avoid, additional problems that can occur when adjusting a claim. Retail agents and brokers can provide valuable assistance to policyholders with respect to this aspect of claims reporting and adjustment.

Sometimes an insured gives notice of a claim to its insurer, then never communicates with the insurer again. In some instances, the insured may defend and settle the claim without ever involving the insurer. Or, the insured may fail to keep the insurer apprised of case developments and then reach out to the insurer at the last second to ask for settlement authority. The foregoing conduct is a sure-fire way to create coverage problems that should not exist. Approaching a claim in this manner can result in the insurer either refusing to give settlement authority or consent to a settlement without a full download of information and vetting of the claim. It can also result in a denial of coverage for the claim due to breach of the cooperation obligations in the policy.

The coverage issues mentioned above can be minimized, if not avoided altogether, by keeping the insurer up to date with claim developments. It’s wise to begin by having a call with the insurer and defense counsel, along with the insured, to introduce everyone, discuss the status of the case, ask the insurer about needed documentation, and discuss the cadence of status update calls. Then, long before any request for settlement authority is made, the insured and defense counsel can provide the insurer with the information needed in order to respond to such a request. This can become complicated and might involve evaluating potential waiver of attorney-client privilege as well as attorney-work-product protections, especially if the insurer requests a damages/liability exposure analysis. Those issues can be addressed by a qualified insurance lawyer, but a robust communications protocol is key to a successful claim adjustment process.

BOTTOM LINE

Ensuring the timely reporting of claims under a claims‑made policy can be complicated when compared with an occurrence policy, as it involves a different thought process for agents and brokers who are accustomed to working with occurrence forms. By better understanding these requirements up front, and handling them accordingly, retail agents and brokers can help their insureds with respect to coverage under their professional lines policies. Contact your CRC Group Producer today for more information.

CONTRIBUTOR

• David Alferez is a director with CRC Group’s ExecPro Practice Group

**This article provides tips and suggestions only with respect to giving notice of a matter that actually falls within the definition of “claim” under the policy at issue. This document does not intend to give suggestions with respect to whether or not to give notice of circumstances that could give rise to a claim.