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Saturday, March 17, 2018

Avoid “Notice” Landmines When Seeking Coverage

The receptionist just brought you a thick envelope. Inside are a summons and complaint revealing that your company and its CEO have been sued. You’ll need your insurance company to defend this lawsuit, so you pick up the phone. But who do you call? Do you call the insurance company? Do you call your broker? Do you call a lawyer first? Who do you call? 

First, as a general rule with few exceptions, don’t call. Do everything in writing even though it’s a little slower. Many unhappy insureds have spoken to a sympathetic voice at the other end of the line, only to be told later there was no record of the call or there was a dispute about who said what to whom.  When you’re trying to prove you submitted timely notice of a claim, that’s not a landmine you want to discover the hard way. 

Second, don’t guess. Many policies make timely notice a condition precedent to the insurer’s duties, and California courts have enforced some policies’ condition precedent language word for word. If you do not follow the notice instructions to the letter, your insurer probably won’t pay for any defense or investigation costs you incur before you do. They may even contend you failed to provide notice altogether. The good news is that your insurance policy will usually tell you how to avoid this landmine. Search the policy carefully for the “Notice” provision showing the name, title, and address of the agent to whom you must give notice. If you cannot find such a provision, or if you have an old policy and you’re afraid the insurer’s agent has moved on, call the agent to confirm they’re the one to notify. If nobody answers, or there is any doubt, do the research necessary to find the new agent for notice.  Don’t just send it to the main office and hope for the best.

Third, make sure you’re about to notify the correct insurer or insurers. One of the most common notice landmines is the insured’s failure to guess what kind of coverage is needed and which insurer or insurers have potential responsibility in the matter. A related landmine is the failure to specifically inform the insurer which policy or policies you want coverage under. Many is the insurer that has disingenuously exclaimed, “Well, why didn’t you say so?” As a matter of belt and suspenders, always tell the insurer you want coverage “under any and all policies of insurance issued by [your insurer] or its affiliates that could potentially provide defense or indemnity coverage for this matter.” Put the ball in the insurer’s court.

Fourth, make sure you can prove that you provided notice as required by the policy. Send the notice by FedEx, UPS, trackable U.S. Postal Service Priority Mail, certified mail with return receipt requested, or some other method that requires acknowledgement of delivery. Keep receipts and acknowledgements in the file with your copy of the notice. If you have an email address for the insurer’s agent, and you wish to send notice by email—in addition to the above methods—make sure to tick the button on your outgoing message to get a delivery receipt and/or notice that your message has been displayed on the recipient’s screen. File the delivery receipt or display notice together with the email. 

Fifth, resist the temptation (and sometimes the broker’s instruction) to let your broker notify the insurer of the suit. If the broker fails to provide notice according to the terms of your policy, it’s the same as having provided no notice at all. Your broker is your agent in sending notices to the insurer, and the insurer will charge the broker’s failure to you. If you lose coverage as a result, you may have a claim against your broker, but that doesn’t mean you’ll get coverage from your insurance company. Moreover, while you may be tempted to send a copy of your notice to your broker, ask yourself why you want to do that. Yes, it may be prudent to see whether your broker can identify other insurers to whom you should send notice, but remember that anything you say to your broker may inadvertently be disclosed to a third party or, worse, it may be discovered by the plaintiff and held gleefully against you.   

Sixth, as another general rule with few exceptions, don’t wait. Get notice out the door as soon as you can. If the lawsuit (or other claim) is against an officer or director, or if it alleges any act, error, or omission of a person who might qualify as a professional (and the definition can be very broad), assume that the applicable policy was issued on a claims-made-and-reported basis. Under such policies, the insured typically must receive the claim for the first time—and see to it that the insurer actually receives notice of the claim—before the expiration of the policy (or any extension thereof). On any given day you may be surprised to learn that your policy is about to expire. When that landmine presents itself, you may have to act very quickly to avoid disaster.

In future posts, I will highlight things you should put into your notice letter as well as those that you should leave out. 

And always, always remember Rule No. 1. 

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