- Avoid Common Pitfalls When Giving Notice to Your Insurance Carrier After a Loss
- March 12, 2014
- Law Firm: Brouse McDowell A Legal Professional Association - Akron Office
A fire destroys your warehouse containing millions of dollars of inventory. An employee is discovered to have embezzled thousands of dollars. A company driver strikes and grievously injures another person. No matter how many precautions your company may put into place, accidents, business interruptions, and other losses are inevitable. Companies buy insurance to protect them when catastrophe strikes, but business leadership is often so focused on managing the crisis that they fail to provide notice to their insurers until long after a loss occurs. Timely notice of a claim is critical, and a policyholder should be diligent in making sure it complies with the relevant policy’s notice requirements. Here’s how:
- Don’t Wait to Provide Notice to Your Carrier.
Most primary liability policies require notice of a claim or suit “as soon as practical” after the policyholder becomes aware of it. The policyholder or its attorney should look carefully at the specific provisions in the policy to determine when the obligation to give notice arises. Some policies require notice upon the first indication that there might be a claim, such as threatening correspondence from a lawyer. Others might not require notice until a suit has been filed.
- Know Who Should Receive the Notice.
Most policies expressly state where notice should be sent. A policyholder can also notify its insurance broker of a claim. In Ohio, notice to a broker is considered notice to the insurance carrier and is also sufficient. This is often important when dealing with long-tail claims arising from a company’s historical operations. Over the years, insurers have merged with one another, and sometimes it is difficult to trace the insurer that is now “responsible” for a policy that was issued decades ago by a now-defunct insurer. Notice to the broker allows a policyholder to give prompt notice without having to make such determinations.
- Understand the Difference Between Claims-Made and Occurrence Policies.
Some policies are issued on a claims-made basis as opposed to an occurrence basis. This means that the policy will only pay for claims that are actually made during the policy period. Conversely, in an occurrence policy, such as a typical general liability policy, the policy will pay for occurrences (accidents) that happen during the policy period, even if the insurer receives notice of them after the policy expires. Directors and Officers policies, Errors and Omissions policies, and Employment Practices Liability policies often are claims-made. Providing timely notice to the insurer on a claims-made policy is critical because the insurer will only cover claims that are (i) actually made against the policyholder during the policy period and (ii) also reported to the carrier during the policy period or within a relatively short time frame after the policy expires.
- Don’t Assume Late Notice Means Coverage is Forfeited.
In occurrence-based policies, failure to provide timely notice is only a defense to coverage if the insurer has been prejudiced by that failure, even if notice was given years after the triggering event. The key issue is whether there has been prejudice - for example, if key witnesses have died or the underlying case has been settled without the knowledge or input of the insurer. Absent such circumstances, late notice will not bar coverage. Nonetheless, it is obviously better to avoid having to make these arguments in the first place. A risk-savvy policyholder should notify their insurance carrier as soon as they become aware of a claim or suit.