When a loss occurs, the policyholder must give notice of the claim under all of its potentially applicable insurance policies as soon as practicable.
A claim may trigger more than one policy and it is important to place all potentially applicable insurance policies on notice. Not only should the primary policies be placed on notice, but the umbrella and excess policies should be placed on notice as well. A policyholder should review the policies as they typically identify to whom notice must be given. Notice letters, with documentation of the claim (a complaint, letter, etc.), should be sent by certified mail, return receipt requested, so that the policyholder has documented evidence that the insurance carrier received the notice letter.
If a policyholder fails to give timely notice of a claim, serious coverage issues can arise. For instance, insurance carriers can assert late notice as a coverage defense to deny coverage.
Upon receipt of a claim, the insurance carrier can: (1) accept the claim and provide coverage; (2) reserve coverage rights; or (3) deny coverage. When the policyholder receives a reservation of rights letter or denial of coverage letter from the insurance company, it should not file the letter away. Instead, the policyholder should respond to the reservation of rights letter or denial of coverage letter and make a record that it objects to the denial or reservation of rights and assert that it continues to preserve all rights to coverage for the claim. Many times the insurance company’s analysis is flawed and it is up to the policyholder to try and persuade the insurance carrier to reconsider its coverage position.
There are a number of coverage issues surrounding notice letters and the insurance company’s response to same. It is important for companies to pay serious attention to the noticing process.