By Claire Juliana of Aon Risk Solutions
For many, the advent of a new year heralds a renewed promise to exercise more, get more organized or perhaps spend more time with the family. Making a commitment to more careful claims management practices doesn’t usually top (or even make) the list – but, for both commercial and individual policyholders this, among other noble goals, deserves attention.
There is nothing more painful to the bottom line or wallet than losing valuable insurance rights. Policyholders should safeguard these precious rights and avoid needless conflicts by having a proper appreciation of the various obligations contained in their policies. Given the veritable patchwork of different rules and standards among the States, particularly when applied to insurance policies, it is imperative to recognize these obligations and institute practices to alleviate the harsh and unnecessary consequences that can result. The following highlights some areas where particular attention should be paid and unnecessary consequences (like coverage denial) can be avoided.
Many clients have learned the hard and costly way about notice obligations. Typically, insurance policies require that notice of a claim or other circumstance triggering coverage is provided to the carrier within a specified time, or sometimes “as soon as reasonably possible” (or perhaps the slightly more forgiving but not necessarily clearer “as soon as practicable” standard). Generally, courts have interpreted these requirements as requiring that be given within a reasonable time under the circumstances of the particular case – a factual determination that may ultimately have to be made by a court in a costly litigation as to whether a delay was reasonable or not.
Typically the policy requires that notice is made in writing, or if oral, that it is immediately followed with a written confirmation to the carrier. This obligation is usually combined with a requirement that the insured furnish additional information to the carrier such as the nature of the covered event, identification of injured parties/property and witnesses and often requires the insured to immediately forward certain things such as demands, summonses, notices or other legal process or papers to the carrier. If an insured fails to report claims or potential claims or circumstances in accordance with the policy, there is a distinct possibility that coverage may be limited or disallowed altogether. Although there may be circumstances where untimely notice will not, in and of itself, result in a forfeiture of coverage absent prejudice to the insurer, in the context of claims made policies, many courts will uphold a carrier’s right to deny coverage even without a showing of prejudice. This position is rooted in the fundamental principal that prompt notice allows the insurer to undertake a timely investigation of the claims against the policyholder while the evidence is fresh.
So, when a claim is made or circumstances are presented that suggest the potential for a claim, a policyholder should review all potentially applicable insurance and tender notice to all carriers (including excess carriers where a potentially significant loss is presented) as soon as possible and always within the mandated time frames. And, if in doubt, the insured should consult with its broker or other insurance advisor. However, the actual reporting of the claim should be done by the insured and not delegated to a broker, advisor or other third party as insurance policies often require that the reporting is done by the insured.
Consent (or rather lack thereof) has been the source of many heated, costly and unnecessary coverage battles. Generally, all liability policies contain a provision requiring that an insured obtain the carrier’s consent before making any payment, assuming any obligations or incurring any expenses. Often, the provision is incorporated into the section of the policy concerning reporting obligations and may require not only consent but prior written consent. Although there may be exceptions to this requirement, such as the provision of first aid, or, in certain circumstances, responding to an emergency , the policyholder should assure that before engaging outside counsel, retaining a consultant, entering into settlement discussions or making any payments or incurring liabilities that it consults with and obtains consent from its insurer. Unlike notice provisions that may not result in a forfeiture of coverage, most courts have upheld an insurer’s right to deny coverage for breach of a consent clause – even without a showing of any prejudice. Careful attention to and adherence with the consent requirements mitigates the potential that an insured face the unpleasant prospect of having to pay for such costs and expenses out of its own pocket.
An often overlooked provision within the policy, the cooperation clause requires that the policyholder assist the carrier in the investigation, defense and settlement of claims. The principal reason for the clause is that the policyholder is in a better position to know the facts and circumstances about the claim and have access to information that is critical to presenting a complete defense and obtaining a fair judgment or settlement. In addition, the provision is intended to discourage insureds from colluding with their claimants.
Generally, the cooperation provision can require that an insured attend hearings and trials when requested, assist in settling cases, and help secure and provide evidence to the insurance company. If the policyholder does not provide its cooperation and the insurer can show that it has been actually and substantially (in most cases) prejudiced thereby, the insurer may successfully decline coverage leaving the burden of defending the claim (and potentially paying any resulting judgment or settlement) on the insured. The insurer’s right to require cooperation is not an absolute one and must be balanced against issues of privilege, confidentiality, conflict of interest and, as noted above, a showing by the insurer that the insured’s non-cooperation actually prejudiced it.
As with most resolutions, the maker starts out with enthusiasm and confidence but frequently over time the commitment level wavers. Let 2012 be the start of a new and unflagging pledge to insurance matters - that insurance matters - and that careful adherence to the policy terms described above can help to avoid costly, unnecessary and time consuming coverage disputes.
For an excellent discussion on emergency response cost coverage in pollution liability policies, please see “Emergency Response Costs in Pollution Liability Policies – How to Avoid Making an Emergency a Disaster” by Rodney J. Taylor and Jamie Taylor available at: http://www.irmi.com/expert/articles/2011/taylor08-risk-management-environmental.aspx
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