Spring is upon us, which means the return of baseball. It seems only fitting that with a new season of America’s pastime just underway, we discuss another area where the performance in the lead-off position can be vital: leading off the claims process by providing notice to your insurer.
Say your company’s just been sued, received a demand letter, suffered massive property damage, or incurred some other type of substantial loss. If your routine practice in these high-stress situations is to consider potentially applicable insurance, you’re ahead of the curve and should pat yourself on the back. Because too often, even if understandably, insurance is an afterthought to companies in the midst of a crisis. Unfortunately, in such situations, when a company does get around to making an insurance claim, the insurer commonly denies coverage on the basis of late notice.
A good rule of thumb is to provide notice as soon as possible to any insurer whose policy may apply. That said, policyholders should not simply pitch notice letters to their insurers as a knee-jerk reaction. Carefully consider whether, how and to whom notice should be provided. There are far too many considerations to cover in one blog post, and, of course, those considerations will be heavily influenced by the circumstances surrounding the particular policyholder and loss. But here are five key considerations—in no particular order—that a policyholder should take into account when deciding whether to provide notice:
- Consider whether you have an actual claim or something short of it.
If you’ve been sued, there’s little doubt you have a claim and you’ll want to give notice. But sometimes you’re thrown a changeup. For example, suppose you become aware of circumstances that may eventually lead to a suit or claim. Generally, you’ll be better off giving notice of circumstances, and your policies may in fact require that you do so. In that instance, a claim that arises out of those circumstances will be covered under the policy in force when you provided notice of circumstances. But if it’s not clear that you have circumstances that may give rise to a claim, you may want to hold up. For example, if the policy’s aggregate limit has already been exhausted, and the policy does not require notice of circumstances, you might wait until the claim ripens, potentially pushing coverage into the next policy. But be careful. The next policy may exclude claims arising from circumstances known to the insured prior to its inception. Not surprisingly, understanding the specific provisions of your policy is critical. (By the way, the opposite strategy can be valuable, as well—providing notice of circumstances under an expiring policy with untapped limits to maximize the value of that insurance asset while preserving limits under your newly incepting policy.
- Consider all potentially applicable insurance.
It’s generally best practice to over-tender rather than under-tender. An insured should notify any insurer whose policy potentially provides coverage. This may include stepping “outside the box” to provide notice under policies that do not seem at first like they would be implicated by the loss. And consider notifying excess insurers, even if you think the loss likely will not reach their policies. There may be little downside (and substantial upside) to over-tendering.
- Understand your policies’ deadlines for providing notice.
A common insurer coverage defense is that a policyholder did not provide timely notice. Policyholders often find themselves with a late notice problem because they don’t realize they have a claim or don’t think about insurance until too late. Notice requirements vary widely between policies—some policies require notice within a set period of time (e.g., within 90 days after the policyholder becomes aware of the loss), while others aren’t as specific (e.g., requiring notice “as soon as practicable”). Some jurisdictions don’t permit an insurer to avoid coverage on the basis of late notice unless it was prejudiced by the alleged lateness, but your best bet is to avoid the timeliness issue in the first place. One of the first things a policyholder should do when considering a possible claim is review the notice provisions of the potentially applicable policies to ensure deadlines are not missed inadvertently and you don’t strike out.
- For difficult claims, consider involving your broker.
You’ll typically involve your broker as an intermediary in tendering claims for coverage. But when the pitch is more difficult, your broker can also be a valuable pinch-hitter, a substantive resource and claim advocate. The broker normally will have a relationship with the insurer, and may be able to act as a facilitator to help bring about a positive resolution, sometimes even before the claim is formally tendered. But be careful about corresponding with the broker. Such correspondence may be discoverable in litigation down the road.
- Be careful about characterizing the underlying claim or loss.
When it comes to a notice letter, less is usually more. Don’t tell the opposing manager your lineup before you have to. The last thing a policyholder wants to do—particularly early on before a claim is well-understood—is say something in writing that will undermine the claim or later be used against the policyholder in litigation. If no explanation is needed to explain why coverage is triggered, it is generally best to simply provide the insurer with the underlying complaint or demand letter and characterize it as little as is necessary. On the other hand, if the face of the underlying claim does not spell out a clear basis for coverage, it may be necessary to provide some additional information or context to reduce the chances that the insurer will deny coverage.
The claims process is a nine-inning sport with a lot of curveballs and off-speed pitches along the way. These are just a few important considerations when you step up to the plate; there are many others. It’s advisable to consult coverage counsel at the outset to help navigate notice issues and the rest of the claims process. You may keep an insurer from balking.