For an insured, a loss is obviously a bad thing. 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 nowadays are issued on claims-made forms. This is certainly true of directors and officers, cyber liability, employment practices liability and various types of errors and omissions liability.

Third-party liability claims often take time to develop, unlike property claims, where damage may be visible right away. In D&O, Cyber, E&O and EPL lines, there may be a lag between a wrongful act or incident and the insured realizing that it has a claim to file. Cyber liability is a prime example; most data breaches are not discovered for weeks or even months.

Claims-made policies can be beneficial to an insured because the coverage triggers are designed to accommodate the nature of such scenarios, where incidents do not become claims overnight. Retail agents should take note of an insured’s expectation that a claim has no merits or will be resolved quickly. Such instances can have big repercussions as the claim evolves or becomes bigger, and the unintentional delay results in late reporting. Withholding information, even unintentionally, that an insurer might need to consider in settling the claim can have serious consequences for the insured. If an insurance company believes that the information could have caused it to act differently or deprived the company of an opportunity to mitigate the ultimate loss, then the company could deny coverage, arguing it was prejudiced by the insured’s late notice. To avoid that outcome, here are some best practices in claim reporting that retail agents and brokers should discuss with their insureds.

DO THESE THREE THINGS TO AVOID LATE NOTICE

To provide more timely notice and avoid the potential denial of a claim, policyholders should:

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 by handling them accordingly, retail agents and brokers can help their insureds with respect to coverage under their professional lines policies.

Contributor:
Andy Herbert, Senior Vice President, Director of Professional Services Group at CRC