Claim Reporting – Your First Step to a Smooth Claim Process

Many insurance policies are written on a “claims made and reported” basis. In our first bulletin, we discussed what a “claims-made-and-reported” policy is. Now, we focus on what to do when a “claim” is made, or when one might be made, against you.  

When a claim is made against me, what is the reporting requirement? 

Should a claim be made against you during the policy period, you must report it to your insurer via the Notice of Claim on the policy. This is how coverage under the policy is typically triggered. It’s different from a general liability policy, for example, where coverage is usually triggered by injury or damage during the policy period. So, timely, full and correct reporting during the policy period is critical. Without that, you could lose the benefit of coverage under your professional liability policy.  

What and when should I report? 

A general rule of thumb is, “when in doubt, report” – or at least consult with your agent or broker concerning whether you need to do so. A lawsuit involving an alleged problem with your professional services will always be considered a claim and should be reported immediately (more on that below). But even without a lawsuit, a demand against you for money or services arising out of a supposed problem with your professional services is a claim and needs to be reported timely. Keep in mind that it does not matter whether you believe it has merit. If a claim has been made against you, whether in a lawsuit or by way of a demand, you need to report it. Your insurer will evaluate the claim and, assuming it is covered, will provide you with assistance in handling it going forward.

An important note about lawsuits: In some states, your response to a lawsuit is due as little as 15 days after you are served. The sooner the insurer receives the lawsuit, the sooner it can begin its review and, once coverage is confirmed, protect your interests. If you hold onto the lawsuit and the response date passes, the plaintiff can seek a default judgment against you, meaning the court will rule in the plaintiffs’ favor without permitting you to put on a defense. Service of a lawsuit means that time is of the essence and you need to report it right away.

What if no claim has been made against me, but I’m concerned about that possibility?  

Most professional liability policies also allow for the reporting of a “potential claim” or a “circumstance.” Generally, this is when a fact, event or situation arises that could reasonably be the basis for a claim later. If you become aware of such a situation, you need to report it. If you do so, and a claim ultimately is made against you, the claim is typically considered as made at the time you reported the circumstance – even if the claim is made after the policy expires.

Important to note: If you do become aware of such a situation but do not report it, once a claim ultimately is made your current insurer may argue that you had “prior knowledge” of the issue, which could affect your potential for coverage.

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Bulletin provided by Phelps Dunbar, LLP. Disclaimer: the information contained in this bulletin is for general guidance and educational purposes only and does not constitute legal advice. Discussion of insurance policy language is descriptive only; every policy has different language and is subject to different terms and conditions. Please refer to your own policy for its specific language.