Previously I talked about Insurance Landmines that lurk in the process of sending a notice of claim or tender letter to your insurance company. (See “Avoiding ‘Notice’ Landmines When Seeking Coverage.”) Here I discuss 10 specific landmines in the notice process that a properly crafted notice of claim or tender letter can help you avoid.
Before getting started, let me explain the difference between a "notice of claim" and what's known as a "tender letter." The former is a broader term referring to your notice to the insurer that you are making a claim for benefits under your insurance policy or that a potentially covered claim has been made against you. A "notice of claim" can relate to either (a) a first party claim, in which you seek coverage for injury, loss, or damage to your own person or property; or (b) a third party claim, in which you seek defense and indemnity against a claim seeking to hold you liable for injury, loss, liability, or damage suffered by a third party. The term “tender letter” refers to your offer to let the insurer handle the defense of the third party claim. The more complete expression is “the letter by which the insured tenders the defense of the third party claim to the insurer.” The tender letter normally serves as both your notice of claim and your request for a defense and indemnity of that claim.
Insurance landmines lurk throughout the process of filing and pursuing a claim—especially a third party claim—and they can be devastating. Over the years I have had to deal with every one of the landmines discussed below, some of them many times. Here are 10 of those landmines and how your notice of claim or tender letter can help you avoid them.
First, as discussed in an earlier post, an insurer may deny or delay coverage on the assertion that it did not receive a timely and correct notice of claim or tender of defense. It may contend that you must send your notice or tender letter to the correct insurer at the correct address, identifying the correct insured, citing the correct policy number or numbers, and fully describing the facts and circumstances of the claim. Most policies provide instructions for these basic steps under a heading like “Notice of a Claim,” “Claim Reporting,” or “Insured’s Duties in the Event of an Occurrence, Offense, Claim, or Suit.” You should follow these instructions to the letter unless—as is sometimes the case—there is a good reason to deviate from them. If you’re thinking about deviating from the instructions, be sure you also think about the landmines that you yourself may inadvertently sow in the process of the deviation. Be sure you know how you’re going to avoid those landmines.
Second, because more than one policy may apply to a given claim, your notice or tender letter should request coverage not only under the policy or policies you believe may provide coverage, but also under “any and all other policies issued by [Insurer] or its affiliates that may provide coverage for this matter.” This request puts the policy identification ball into the insurer’s court and, if another responsive policy does exist, may prevent the insurer from disingenuously claiming you didn’t provide notice or tender of defense under that policy.
Third, many policies make proper notice a “condition precedent” to coverage. This is a potentially devastating landmine as it may permit the insurer to claim it has no duty to you at all unless and until you comply with the notice requirements, even where it’s clear the insurer in fact knows about the claim. Ask the insurer to help you “get it right” with a request like, “If this tender of defense and request for indemnity should be made to any other person or department within [Insurer], please redirect this letter to such person or department and inform me of the name, street and mailing addresses, email address, and phone/fax numbers of the appropriate [Insurer] point of contact.” This is not an infallible guard against self-serving gamesmanship by the insurer, but it may come in handy (and possibly create an estoppel argument) if the insurer claims “improper notice.”
Fourth, if the claim is set forth in a lawsuit, enclose a copy of the summons and complaint with the notice or tender letter. If you believe the documents may be too voluminous for facsimile or email, send a copy of the complaint (or even just its caption page) to the insurer along with copies of the summons and notice of case assignment. This will at least put the insurer on notice of inquiry, triggering its responsibility to proactively investigate the matter. Then follow up by overnight mail, FedEx, or another carrier with a complete copy of the complaint and all of its exhibits, plus additional copies of the summons and notice of case assignment. If the claim is not set forth in a lawsuit, but rather is made in a demand letter or similar instrument, send a copy of the demand to the insurer in the same fashion as you would the summons and complaint, along with any supporting documentation provided with the demand, remembering always to send it in a way that provides proof of receipt by the insurer.
Here’s a related cautionary note. Your insurer may seek to justify a delay in responding to your notice or tender letter on the ground they were "confused" by the receipt of the claim by email or fax and by overnight mail or FedEx. Such excuses are inherently incredible because actual confusion can usually be resolved with a simple phone call. But in all events it is prudent to send notices and tender letters as outlined above rather than risk failing to “get it right” in a timely fashion.
Fifth, when time is of the essence, as may happen when a responsive pleading is due or you need to react quickly for other reasons, it may be prudent to draw the insurer’s attention to the specific allegations that raise the possibility of a covered injury, loss, liability, or damage . Your notice or tender letter should make it very clear, however, that other allegations or issues also may raise the possibility of coverage and that you are not limiting the request for coverage solely to the allegations identified in your notice or tender letter.
Sixth, your insurer may limit or deny coverage on the basis of policy forms that weren’t issued with your policy, or without reference to forms that were issued with the policy. Therefore, your notice or tender letter should request “a complete copy of the insurance policy [or policies] identified in this letter as well as complete copies of all other policies issued by [Insurer] or its affiliates that may provide coverage for this matter.” It should also request “that each policy be provided with all forms and endorsements forming a part of the policy, including the completed application if applicable, so we can evaluate the existence and scope of coverage under the policies.” As each policy arrives, study it for missing pages and compare it closely to the policies from your own file to identify any differences between the two. If there are any discrepancies, you should be able to resolve them by looking at the policy’s list of forms and endorsements.
Seventh, it is important to know whether your policy includes any deductible or self-insured retention, and whether the policy limits have been reduced or exhausted by prior claims. Your notice or tender letter should ask the insurer whether there is a deductible or self-insured retention and what the currently remaining policy limits are. If appropriate, it should caution the insurer that “absent the receipt of such information, we will assume that no deductibles or self-insured retentions apply and that the policy limits of all policies issued by [Insurer] and its affiliates are unimpaired.” You don’t want to find out too late that the policy limits are not sufficient to cover a judgment or settlement in a third party liability claim.
By the way, the term “self-insured retention” is something of a misnomer, a throwback to the day when insurers commonly argued that the policy required the insured to “self-insure” at some level and that the insurer had no duty to the insured unless and until the insured had “paid its share” toward the investigation, defense, and/or satisfaction of the claim. In recent years, courts have held that unless expressly agreed between the insured and the insurer, the insured is not an “insurer” for purposes of a claim and that it does not “self-insure” on a given claim. Thus, more recent policies refer to a “retention” instead of a “self-insured retention.” The effect of the newer language may be largely the same, but the insurer’s underlying theory is different.
Eighth, a long line of California cases require insurers to “immediately” undertake the defense of a lawsuit or claim against its insured that seeks damages covered by the policy. If your insurer fails to timely undertake your defense it may become necessary for you to hire defense counsel using your own financial resources. For this reason the notice or tender letter should inform the insurer that you have engaged (or will engage) such counsel “until such time as [Insurer] provides for investigation and defense of the matter in conformance with the policy and California law.” In addition, it should put the insurer on notice that your defense counsel will be “taking steps as may be necessary to protect our interests” and that it will be doing so “at that firm’s regular and customary fee rates which may be higher than the fee rates paid by [Insurer] in the defense of similar matters in this community.” Having received such notice, the insurer will be hard pressed to claim (a) that it is not responsible for investigation and defense costs that you incur prior to the insurer-appointed defense counsel taking control of the matter, or (b) that it need pay only a portion of those costs.
Ninth, the inadvertent disclosure of communications between and among you, your insurer, and your attorney is a potentially disastrous landmine just waiting to be triggered by the claimant’s inquisitive lawyer (during discovery, for example). Your notice or tender letter should not admit allegations or present facts that could be used against you by the claimant. It is usually sufficient to say the claimant has made these allegations in the claimant’s own language (or better yet, just direct the insurer’s attention to the allegations without comment) and then establish secure methods of communication before discussing your case further with your insurer. As the insurer seeks to establish a written record of the facts, make sure the insurer agrees to maintain the confidentiality of that record and that the insurer takes responsibility for any detriment arising out of the disclosure of such record whether the disclosure is inadvertent or intentional. In addition, your notice or tender letter should include a notice such as the following:
All claim-related communications provided by us or on our behalf, whether by our legal counsel, or by our officers, directors, shareholders, employees, third party claim administrators, agents or other representatives, are provided for the purpose of obtaining defense and indemnity from [Insurer]. We expect that all such communications will be delivered to legal counsel tasked with protecting our interests, that the communications will be protected by the attorney-client privilege, and that the communications will be protected from disclosure to third parties except as necessary for our defense. We trust [Insurer] will timely advise us in writing if it believes it cannot or will not meet these expectations. In all events, we hereby claim and assert the attorney-client privilege and the protection of the attorney work product doctrine with respect to all communications with us in this matter. No act or omission, and no statement made or omitted, by us or on our behalf should be construed as a waiver of any such privilege or protection. All of our legal, equitable and contractual rights are hereby reserved.
The foregoing language does not guarantee that the insurer will maintain the confidentiality of its communications with you, or that a claimant will be absolutely unable to discover those communications during litigation, but it puts your insurer on notice that you expect the communications to be kept confidential, and it should reduce the chances of unwanted disclosure by the insurer.
Finally, tenth, although your broker may be willing to submit a notice of a claim or tender on your behalf, and may in fact insist on doing so, allowing the broker to be the sole communicator of your notice of claim or tender of defense is, pardon the pun, bad policy. For one thing, if the broker fails to provide “proper notice” as required by the policy (yes, it happens) you will bear the burden of their failure, potentially losing coverage as a result. But more to the point, brokers are loathe to provide the notices, requests, and cautions discussed above. In virtually all cases the broker simply won’t do it. So even if the broker insists on filing the claim on your behalf (which you can normally refuse) you should follow up with a notice of claim or tender of defense letter as outlined above. Better safe than sorry.