How To Avoid Denial Of Insurance Coverage Due To Late Claim Notice
Imagine after dutifully paying E&O, D&O insurance premiums for years, only to be denied coverage because the claim’s notice was filed after the deadline. It is a nightmare for insured as well as for the broker/agent who can be liable for errors and omissions if they had not advised their clients of their duties or if the claim notice requirement is not processed properly.
This is because claims-made liability coverage for E&O, D&O involves determining when a claim is made and hence coverage is triggered, the bases for managing professional errors and omissions, director and officer liability policies.
(Under occurrence-based policies for general liability and automobile insurance, the clock for loss occurred starts running when bodily injury and/or property damage happened.)
When in doubt, give notice
In a February 2019 ruling in California, a state court held that because an insured had failed to provide timely notice of a subpoena from the U.S. Dept. of Justice, the insured under a D&O policy was not entitled to coverage, even though it appeared to the insured that DOJ had asked the insured not to disclose about the subpoena as the investigation was still in process, in a cover letter. The insured thus gave no notice – a mistake that cost the insured dearly, upon the belief that no claim would be made until the investigation was closed.
The DOJ letter did not prohibit the insured from notifying the insurer. It specified that the insured “give this Office advance notice if you plan to disclose the existence of . . . the subpoena.” The judge relied on this line in ruling in favor of the insurer’s argument that the insured had not met the notice requirements under the policy.
For many insureds who hesitate at reporting what they believe to be “frivolous” claims out of fear that reporting “unnecessary” claims may jeopardize their coverage or jag up their premiums down the road. But the risk of a denial of coverage due to late notice outweighs these concerns. An insurance company actually views a client’s providing notice of claims and potential claims as reflecting responsibleness for managing risks.
For insureds and producers to avoid being denied of coverage because of late notice of claims, consider these factors regarding their notice of loss:
Filing requirement for an insurance “claim” is not the same as a “lawsuit”:
Since an earlier trigger of coverage requires earlier notice to the insurer, the earlier an occurrence is determined to meet the definition of a claim, the better for “starting the clock” toward the deadline for providing notice of a claim or the possibility of a claim.
If a claim is defined as “a demand for monetary, non-monetary, or other relief,” an insured with this coverage need to know that claimants may demand for relief before filing a lawsuit. In this case, an insured should not wait until the claimant formally files suit before notifying the insurer, to avoid the risk of having coverage denied for late notice by the insurer. An insurer more often than not will retroactively date the time when the claimant first sought relief, for monetary, non-monetary, or other relief.
The notice period starts when a loss first becomes known.
For coverage for non-monetary relief, insureds need to understand how pre-claim expense coverage affects the timeframe for providing notice. Their coverage may be denied if insureds delay notification until after a formal investigation or proceeding commences.
Usually a specific time period, such as within 30 days, in a policy obligates an insured to notify the insurer of a claim. If an insured knows a circumstance that could give rise to a claim, the insured should immediately seek advice from their agent or broker before providing notice to the carrier.
The insured should get legal advice from attorneys about how to obtain permission to notify their insurer about an investigation If a government agency asks an insured not to disclose the existence of an investigation.
It is better for the insured to have a limited number of people, such as the general counsel or risk manager or their equivalents, as the people to be notified. The policy provisions define which individuals need to have knowledge of a claim or potential loss for it to be considered “known” to the insured for the notice requirements.
Time limits for notifying the insurance carriers: Insureds are to notify carriers “as soon as practicable” after an individual designated in the policy “becomes aware of the claim.”
Notice provisions may also provide time limits for reporting claims after a policy expires. If a policy allows an insured to report a claim after the expiration date, an insured’s knowledge of a claim starts when the claim has been made. – Check the policy for details and talk to us.
Notify your excess insurers: Remember to notify excess carriers at the same time as primary insurers.
Relevant exclusions for prior, pending, or known wrongful acts
if the insured fails to disclose knowledge of a wrongful act that can be reasonably anticipated for causing a claim, coverage can be denied.
We are the Extra Milers
As the Extra Milers for protecting businesses, employers and employees, the Rick Callaway Commercial Insurance Team proactively help insured by reviewing policy provisions for these critical terms such as “claim”, “notice”, and related limitations, triggering events and relevant verbiage. We provide you with a solid understanding about obligations before any perils occur.
Before renewing a policy, it is in your best interest to understand about notice requirements and exclusions for known wrongful acts or known circumstances that can result in a claim.
We highly recommend using the renewal process to call and talk to us about any circumstances that could evolve into a claim. An ounce of prevention is better than a pound of cure.
- PAMC, Ltd. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2019 WL 666726 (C.D.
Cal. Feb. 12, 2019)