All insurance policies have provisions requiring timely notification of a loss or claim to the insurance carrier. Commercial general liability policies, for example, provide that the policyholder “must see to it that we are notified as soon as practicable of an ‘occurrence’ or an offense which may result in a claim” and that “[i]f a claim is made or ‘suit’ is brought against any insured, you must . . . [notify us as soon as practicable].” Claims-made policies, which include most director’s & officer’s liability and professional policies, generally also require notification of a claim “as soon as practicable” but in any case within the policy period or within a specified period of time (60 days, for example) after the policy expires.
The consequences of not giving your carrier timely notice of a claim can be severe. In many cases, failure to timely notify an insurer will excuse the insurer’s obligations under the policy. Even in jurisdictions that require insurers to provide prejudice before denying claims based on notice issues, policyholders can be forced to spend significant time and money litigating their claims, or see the settlement value of their claims diminish significantly, if the policy’s notice requirements are not met.
So, what do you need to do to get your notice right? Here are five best practices:
- Don’t rely on your broker. Many brokers will provide notification as a service to their clients, but it is best not to rely on a broker to give notice for you. Many a policyholder has assumed that their broker would handle notice, only to discover later that coverage was compromised due to late, inaccurate, or incomplete notice. Brokers can be helpful on notice issue, but it is up to the insured to get notice right, and the insured will bear the consequences if it is not.
- Do follow the notice requirements of the policy. First and foremost, this means your notice must be timely. Do not wait until you have settled a lawsuit, repaired damaged property, or responded to a governmental investigation before notifying your insurance carrier. In addition, pay attention to other notice requirements in the policy. Send your notice to the address specified in the policy, not to your broker. Provide any information that the policy requires be included. Be careful, though, not to divulge attorney advice, as a policyholder’s communications with its insurance company generally will not be privileged.
- Don’t assume that late notice will be excused. Insurance law varies from state to state, and while many states require an insurer to demonstrate prejudice before denying a claim based on late notice or otherwise disfavor forfeiture of coverage, other states strictly enforce notice requirements. The law of notice may also differ for claims-made coverage, where part of the insurance bargain with the carrier is that coverage exists only for “claims made and reported” within a specified period.
- Do consider reporting a notice of circumstances. Many claims-made policies permit an insured to provide the carrier with notice of “circumstances which may reasonably be expected to give rise to a claim,” even when a claim does not yet exist. The advantage of proving a notice of circumstances, from the policyholder’s perspective, is that if the notice is accepted by the insurer, it will lock in coverage under the policy then in effect, leaving future policies fully available to cover future exposures. Indeed, failing to provide notice of circumstances can lead to the claim not being covered at all under a future policy.
- Do consider reporting requirements to excess carriers. Excess policies present different notice considerations than primary policies. Most excess policies do not require the carrier to defend claims, and the majority of losses will not involve excess insurance. For this reason, notice to excess insurers must generally be given when a loss is reasonably likely to involve the excess policy. However, excess policy notification provisions may vary significantly, with some requiring notice regardless of loss amount. For this reason, it is essential to pay careful attention to policy language and to carefully evaluate the loss with the assistance of counsel when considering whether and when to notify an excess carrier.