Organizations buy insurance as protection against events that might happen in the future. If, regrettably, a claim arises, how can you increase the chances that it will be covered under your insurance? This article outlines some steps to take when managing the process of claiming reimbursement for your loss.
Your first step in responding to a major claim with an insurer should be to assemble a team that can assist you in understanding potential coverage issues before the claim is presented. The team should include your company’s risk manager, in-house counsel, outside counsel if necessary, insurance advisors (such as the broker), and senior management. Depending on the nature of the claim, experts may also be needed.
Assembling a team is important because, at a very early stage, the insurance company will appoint insurance adjusters. A spokesperson for your company should be appointed to liaise with these adjusters and to manage the flow of information. The team can ensure the spokesperson is well-briefed, identify the company’s obligations under the policy to ensure compliance, and ensure the coverage implications of all decisions are carefully considered.
Your next step should be to read the policy carefully to identify reporting requirements. In an event/occurrence policy, coverage is triggered by the actual event or occurrence, which you should report immediately to the insurer who provided coverage at the time the occurrence took place. You should also report to all insurers under all possible policies, including umbrella and excess insurance policies. Delays in reporting can prejudice the insurer and impact your coverage.
With a ‘claims made’ policy, you must make the claim and serve notice of the claim on the insurer during the term of the policy. A delay in reporting the claim can result in no coverage, for which there is no relief from forfeiture.
In a situation where a policy is about to expire and a notice of an occurrence has been provided to the insurer, but no claim has been made on you by a third party during the term of the policy, you should consider obtaining run-off insurance, which extends coverage long enough to satisfy any limitation period. This advice is based on the 2006 Supreme Court of Canada ruling, in Jesuit Fathers of Upper Canada v. Guardian Insurance, which defined a claim as a demand by a third party to hold the insured responsible for damages. Apart from demands, the policy may also require the insured to notify the insurer of occurrences that may give rise to claims.
In addition to the notification requirement, you are required to co-operate with the insurer when a claim occurs by i) obtaining the attendance of witnesses; ii) securing evidence; iii) providing relevant evidence that is not in the public domain; and iv) protecting the right of subrogation.
Further, you cannot do anything to prejudice the insurer’s rights, which are i) the right to investigate; ii) the right to admit liability; and iii) the right to effect settlement.
Finally, you should remember that an insurance contract imposes on you a continuous duty of full disclosure and obligates you to report changes material to the risk throughout the term of the policy.
Liability insurance policies customarily contain covenants to indemnify the insured for liability covered by the policy and to defend any claims brought against the insured that are covered by the policy. As the duty to defend depends upon the allegations in the Statement of Claim, the duty to defend may be broader in practice than the duty to indemnify. Consequently, it is not necessary to determine whether the insured’s obligation to indemnify will in fact arise in order to trigger the insurer’s duty to defend. Canadian courts will generally give wide latitude to allegations in pleadings to determine whether they raise a claim within the coverage provided by the policy.
Some directors’ and officers’ liability insurance policies do not include covenants to defend, leaving this the responsibility of the insured. However, these policies usually contain a covenant whereunder the insurer promises to pay for the defence. In many situations, the duty to defend a lengthy complex lawsuit remains the real value in the policy.
Insurers may initially deny coverage under a policy while they investigate the claim further, and may propose a non-waiver agreement to the insured. They do this to avoid any claims for waiver or estoppel while they conduct the investigation, and to preserve their rights to deny coverage. Non-waiver agreements often provide insurers with rights they do not have under the policy. You are not obligated to enter into a non-waiver agreement, but if you choose not to, you will have to consider other ways to deal with their denial of coverage.
If your insurer does indeed deny coverage, you should write a letter to the insurer asking them to set out in writing the basis for their denial. In this letter, express your willingness to co-operate fully with the insurer. If the insurer persists in its denial of coverage, be prepared to challenge their position while impressing on the insurer that you expect them to honour their commitments under the policy.
If an agreement can be reached, you should ensure it is documented under a reservation of rights agreement.