One of the most common questions in our industry is: When should an insured report a liability claim to their insurer? Is it when they receive a summons? When they get the first fee invoice from their attorney? During the court case? Or perhaps after the judge has ruled? Absolutely not!
When an insured enters into a contract with an insurer, they agree to certain terms, conditions, and exclusions. A General Liability policy may require a claim to be made (reported or notified to the insurer) as soon as reasonably practicable. A Professional Indemnity policy may require the reporting of a claim to insurers as soon as possible and in any event within 31 days during the Policy period. Other liability policies, such as D&O and Trustees Liability policies, may have similar clauses.
The purpose of the standard notification clause is to enable the insurer to investigate the event insured against under the most favourable circumstances and to ensure that immediate steps are taken to mitigate the loss. Timeous notification enables the insurer to obtain evidence such as, statements, photographs and CCTV footage, while all is still fresh and available. This will also enable a loss adjuster to be appointed promptly to obtain the required documentation and interview witnesses.
Two dates are important to a liability insurer: firstly, when did the incident happen? This is similar to the date of loss and refers to, for example, the date on which an injured person fell in the store. The second important date is when the insured became aware of a possible claim that might follow. Using the earlier example, this would be the date on which the person that fell informed the store owner of the incident.
In some cases, the time period between these two dates could be months (or even years). In this regard one needs to be mindful of the element of prescription. Prescription refers to the legal time limit within which a claim can be brought against the insured. Once this period expires, legal action can no longer be pursued. Putting it in other words, a set time limit for bringing a legal claim against the Insured.
In some instances, the insured may only become aware of a claim when a summons is served. If this happens, it’s essential to act immediately. Do not leave the summons in a dustbin, in your Outlook inbox or discard it. Instead, ensure that the document is promptly forwarded to the appropriate person within the company, who will then pass it on to the broker, along with the date the summons was served.
In conclusion, reporting a liability claim promptly is crucial to ensuring that your insurer can properly investigate and manage the claim. A claim should be reported as soon as an insured becomes aware of an event which a reasonable person believes may lead to a claim. Familiarise yourself with the terms of your policy and always report potential claims as soon as possible to avoid complications or delays.