When it Comes to Reporting Claims, Time is of the Essence
Every commercial policy I’ve ever read has an insurance condition requiring that an insured notify their insurer of a claim in a timely fashion.
For example, a typical Commercial General Liability policy includes a Condition which states that an insured “must see to it that [its insurer is] notified as soon as practicable of an ‘occurrence’ or an offense which may result in a claim.” The Condition further requires insureds to “immediately record the specifics of the claim or ‘suit’” and to “[n]otify [the insurer] as soon as practicable” of a claim or suit brought against the insured. Likewise, a standard Business Auto coverage form’s Condition regarding prompt reporting of claims is worded differently, but is essentially similar in scope to the Commercial General Liability policy. That Condition states that an insured must give its insurer “prompt notice of the ‘accident’ or ‘loss’”, and the insured should further “immediately send [the insurer] copies of any request, demand, order, notice, summons or legal paper”. :
Every insurance policy is considered a contract creating obligations for both the insured and the insurer. One of an insured’s most important responsibilities is to report claims in a timely manner as provided by the policy at issue.
However, there are occasions when this doesn’t happen; it may be that an insured didn’t recognize the potential for a claim being made against them. For instance, an insured may not feel responsible for a slip and fall accident on their premises. Frequently, these are very defensible cases, especially if key information can be obtained quickly. However, there is an important distinction between an insured deciding it isn’t liable for an accident and another party’s legal right to assert a claim. These types of accidents are fact intensive and a court will likely let the claimant have his or her “day in court”. If an insured waits until it receives a letter of representation from an attorney, which can be months after an accident has happened, important evidence that can be used to defend a claim may no longer be obtainable.
My point is, timely reporting is important because the core function of claims adjusters, whether they are handling auto, liability, property or Worker’s Compensation claims, is to collect information as quickly as possible and to make the best decisions based on the facts of the investigation. In the scenario of a slip and fall accident, the adjuster will probably want to visit the location of the accident as soon as possible to photograph the area, speak to witnesses and collect any information that might clarify the how any why the accident took place. Surveillance cameras are prevalent at many business premises and can provide clear evidence of exactly what happened. Quality information begins to deteriorate through the passage of time: witness memories falter, physical evidence is lost and other information that would be pertinent to a claim is eroded. Surveillance videotape is often erased or re-recorded after 30 days.
I have no doubt that some insureds are reluctant to report claims because they are under the misguided belief that:
1. The claim will probably “go away”;
2. If they report a claim to their insurer, the adjuster will pay money to settle even if there is no legal obligation to do so, resulting in an increase in premium; or
3. If they report a claim the adjuster will contact the claimant and “awake a sleeping dog,” creating a claim that would otherwise not exist.
It is important to understand that insurers have an obligation to do thorough investigations on all claims, and by and large, we do our best to pay what is fairly owed. Delaying a claim to the insurer is not only a violation of the policy Conditions, but might have the exact opposite effect than was originally desired: it could occasion a greater likelihood that the insurer’s investigation has been prejudiced, resulting in a higher payment than had the claim been reported timely.
Perhaps the most grievous example of late reporting is the failure to notify an insurer of a lawsuit. Lawsuits are time sensitive where failing to file an appearance and to timely respond to the allegations in a complaint can result in a default judgment. Under such circumstances, an insurer might very well disclaim coverage for breach of the policy condition requiring prompt notification of lawsuits. When an insured is served with a lawsuit, it should treat that complaint as if it were a “hot potato” and immediately notify its insurance agent and/or insurer.
It is important to always keep in mind that, in the eyes of the law, an insurance policy is a binding contract that creates obligations for both the insured and insurer. In exchange for a premium, the insurance company agrees to indemnify its insured’s for covered claims. In return, a critical obligation for any insured is to timely report claims or circumstances which may give rise to a claim. Failing to do so can result in the insurer sending out a reservation of rights letter and, if the delay in reporting is enough to compromise what the insurer would have ultimately paid out had the claim been reported timely, an outright disclaimer of coverage.
Ways in which an insured might avoid late reporting might include revisiting the policy conditions and making sure everyone on your staff knows what a claim is, and isn’t. You might consider appointing a risk manager in your company who would be responsible for discussing potential claim situations. That person would be responsible for reporting claims to the proper entities and making sure the insurer has the information needed to properly investigate the circumstances in order to make the best possible decisions when handling the claim.
If you have any questions as to whether a situation should be reported as a claim, contact your agent or a trusted advisor at Acadia Insurance.
Acadia is pleased to share this material with its customers. Please note, however, that nothing in this document should be construed as legal advice or the provision of professional consulting services. This material is for general informational purposes only, and while reasonable care has been utilized in compiling this information, no warranty or representation is made as to accuracy or completeness. Distribution of this information does not constitute an assumption by us of your obligations to provide a safe workplace. Maintaining a safe workplace in accordance with all laws is your responsibility. We make no representation or warranty that our activities or recommendations will place you in compliance with law, relieve you of potential liability or ensure your premises or operations are safe. We exercise no control over your premises or operations and have no responsibility or authority to implement loss prevention practices or procedures.