Don’t Lose the Coverage You Paid For; Late Reporting Can Cost You Coverage

Source: XL Group Insurance, Construction Insider
By: Cathy Cleary, Esq., AIC, RPLU, CRIS, Executive Underwriter, Environmental

They say a fine wine gets better with age–a claim however does not. Most insurance policies require the insured contractor to provide their insurance carrier with notice of a claim made against that carrier “immediately”,” promptly” or “as soon as practicable.” Many policies also contain some sort of provision allowing for the reporting of a circumstance when no demand or formal claim has been made against the contractor. In most cases, reporting a circumstance to the insurance carrier will preserve coverage under the policy term in effect should that circumstance later develop into a claim.
Reporting claims early is a win-win.
Insurance carriers do their best work for the insured when a claim is reported in a timely manner. The sooner an insurance carrier is aware of an incident that might involve coverage, the quicker the insurer can investigate while evidence is fresh, mitigate the loss, prepare the contractor’s defense and negotiate a favorable settlement amount on the contractor’s behalf. With time, witnesses disappear, move away or become uncooperative; their memories become less reliable. Evidence may disappear or be destroyed and emails and documents may become difficult to locate. A quick response by the insurer may keep the injured party from becoming angry and frustrated, make the party more willing to negotiate a settlement rather than hire counsel and file costly litigation.
Early claim resolution is a win-win for both the contractor and insurance carrier. For contractors, timely reporting of claims is crucial to avoiding coverage disputes with their insurance carriers over late notice and prejudice. The potential loss of time, money and reputation to the contractor in dealing with a claim on their own is also minimized. For insurance carriers, late reporting can put them at a disadvantage in providing their insured contractors with the best possible claims handling service. Established insurers have experienced defense counsel and adjusters skilled at evaluating claims so they can be handled efficiently and properly on the contractor’s behalf. Handling claims promptly keeps insurance costs lower than they would otherwise be. In addition, limiting payments made to claimants and defense attorneys under an insurance policy preserves a contractor’s limits of liability for future claims. Brokers also win with early claim resolution. Exposure to an errors and omissions claim can arise when a potentially covered claim of which the broker is aware is not reported to the insurance carrier.
Failing to provide timely claim notification can cost you.
There are many reasons why a contractor might fail to provide timely claim notification to their insurance carriers:

  • They assume a policy will not cover a particular loss
  • They assume future premiums will be adversely affected by reporting claims
  • They do not learn of the claim until after it is too late
  • They assume the costs will fall within the policy’s deductible or self-insured retention

This last reason is especially troublesome. By the time the facts indicate that the loss will exceed the retention, it may be too late to satisfy a policy’s reporting requirements, and coverage may be denied. Note, too, that most insurance policies do not cover costs—including attorney’s fees and costs—which are incurred without proper authorization and before placing the insurance carrier on notice of the claim. The worst news an insurance carrier can deliver to an insured is that an otherwise covered claim is not covered because the contractor failed to provide timely notification or incurred costs without authorization.
How you can avoid having this happen to you.
All companies should institute appropriate reporting mechanisms as a risk management tool. Large contractors
with numerous on-going projects and hundreds of employees may fail to give timely notice because they never learn of the accident, incident or loss until they are served with litigation papers. Businesses need to set clear guidelines throughout the organization for reporting circumstances, losses and claims.

  • Institute incident reporting procedures and train employees on those procedures. Educate employees
    about their responsibility to report, measure and monitor timeliness of reporting.
  • Designate someone to handle incoming incidents, claims, notices and litigation papers. Make that individual
    responsible for reporting and enforce compliance. Have a back-up in the event that person is not in the office.
  • Consider all demands, notices and litigation to be hot potatoes – establish protocol for reporting these to your
    broker and insurance carrier within 24-48 hours.

Communication is the key to any relationship. Make sure your company is communicating effectively with your broker and insurance carrier. More importantly, empower and encourage your employees to report potential project problems. Help protect the assets of your business by establishing risk management protocols to timely report claims to your broker and insurance carrier. Finally, remember that insurance is a partnership. If you are ever in doubt, the best course of action is to notify your broker and insurance carrier as soon as you are aware of a circumstance, loss or claim.

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