An insurance policy is a contract. In exchange for the premium paid, the insurance company agrees to assume certain risks of the insured subject to the terms and conditions of the contract (policy). In order to be compensated for the losses transferred to the insurance company, the insured must abide by the conditions of the policy. One of the major conditions pertains to the insured’s obligations in the event of an occurrence, offense, claim or suit.
If a claim or circumstance that could give rise to a claim is not reported in a timely manner to the insurance company, they can deny the claim. The chances of the insurance company using this as the reason for denial increases dramatically if the lack of timely reporting prejudiced their ability to resolve the matter.
Like any contract, it is important to understand what obligations are.
Commercial General Liability
The most common general liability policy is ISO CG 0001. The policy provision pertaining to duties in the event of a claim or circumstance reads as follows:
Duties in the event of occurrence, offense, claim or suit: You must see to it that we are notified as soon as practicable of an “occurrence” or an offense which may result in a claim.
“Occurrence” and “suit” are defined in the policy. However, “offense” is not defined and neither is a “claim.” When it comes to an “offense” and the requirements of reporting, the critical word is “may.” This requires the policy holder to notify the insurance company “as soon as practicable” (which is undefined as well), of not only an “occurrence” or “suit” but anything that happens that MAY result in a claim. Needless to say, this is grey and not black and white.
Definitions
Occurrence is an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Suit is a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged. “Suit” includes an arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with the insurer’s consent; or any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with the insurer’s consent.
Auto
Under the ISO Commercial Auto Policy (CA 0001), the insured—“in the event of accident, claim, suit or loss”—is required to give the insurance company’s “authorized representative prompt notice of the “accident” or “loss.” “Prompt” is not defined.
Property
The ISO Property Policy (CP 0010) requires the insured to “give us prompt notice of the loss or damage.” Similar to the auto policy, “prompt” is not defined.
On all of these policies, it is critical that timely notice be provided. If it is not, as mentioned above, the lack of timely notice adversely affects the insurance companies’ ability to settle or resolve the matter and they can decline coverage.
Professional Liability, Executive Risk and Other Policies Written With a Claims-Made Trigger
Notice requirements on policies written with a claims-made trigger are even more important to understand. If an insured is aware of a circumstance or claim that could give rise to a claim and it is not reported either timely nor during the course of renewal, the claim can subsequently be declined.
If there are any doubts as to whether or not a specific circumstance should be reported to the insurance company, call the broker to discuss it. In the event the circumstance is reported and nothing ever comes of the matter, it will not affect the loss ratio and should not affect renewal pricing. If after discussing it with the broker it is agreed that it does not fall within the definition of a “circumstance,” the broker can document the file, thereby protecting insurability if a claim arises out of the same set of circumstances.
Workers’ Compensation
Workers’ compensation is very clear when it comes to claims reporting. “Your Duties if Injury Occurs” requires the insured to: “Tell us at once if injury occurs that may be covered by this policy.” “At once” is not defined, but it is certainly clearer than wording like “prompt” or “as soon as possible.”
The state of California specifically requires employers to report any injury within five days that requires medical treatment or results in lost time from work. However, the more quickly companies respond to workplace injuries through investigation, providing medical treatment, and reporting to the insurance company, the greater the likelihood of a quick and cost-effective claim resolution.
Timely reporting of claims is critically important on all lines of coverage. Whether coverage is provided on an occurrence or a claims-made basis, it is imperative that everyone in the company who may be involved in claim situations know their responsibilities under the policy.
