Last month, I stressed the importance of reporting claims to your insurer promptly, especially under “claims made and reported” policies. Of course, that is the best practice for all types of insurance. After all, there is seldom any downside to prompt reporting other than the hassle (usually pretty minor) involved.
Moreover, policyholders should generally err on the side of prompt reporting even when it is not clear that there has actually been a claim made. For example, a policyholder might receive a letter from a miffed customer, or an inquiry from a government agency. It might not be entirely clear that such a communication really rises to the level of a claim. As a general matter, policyholders should report the communication anyway.
Most policies define the term “claim” in a very broad way that embraces communications that fall far short of a formal demand, such as a court complaint. If the policyholder waits until the claim ripens into a more formal demand before reporting it, the insurance company may deny the claim on the basis that it was first made, but not reported, under an expired policy. To avoid that, the policyholder should report the earliest communication that might conceivably be regarded as a claim or that might be merely the herald of a future claim, and then make additional reports if and when the claim ripens into more formal demands or communications.
Finally, it often makes sense to make a report to an insurance company even before there has been any communication from a potential third party claimant. Under some policies, giving the insurance company notice of circumstances out of which a claim might reasonably be expected to arise can open a window for coverage of any claims that do in fact arise later on, even if they come after the claims made period.
Suppose you discover some wrongful conduct by an employee, or an officer or director of your company. That conduct may have caused harm to some number of customers, or to the company itself. You may not want to wait for a customer, or a corporate stakeholder, to complain before you notify your insurer.
Be careful, however, to avoid making any statements in your communications with the insurance company that could harm the defense of any claim that ultimately does arise.
The law office is located at 28212 Kelly Johnson Parkway, Suite 110 in Valencia. For more information, please call 661-414-7132, email: cneedham@needhamlegal.com and visit online at www.needhamlegal.com.