When an association, director, management company or manager is sued, each named party has to make a decision (preferably in consultation with legal counsel) whether to report the claim to insurers for a possible paid defense. In an effort to avoid negative claim history, and to decrease the chances for a premium increase, a defendant may choose to delay reporting the claim, or to decide to never report the claim. That may be a valid business judgment, but significant consequences can flow from that decision.
If the decision is made to report the claim, the notification and request for a defense must be done properly. We have had to grapple with many claims which were not reported, reported late, not reported in the correct fashion, or not reported to the appropriate insurance company. Any of those situations can lead to the insurer being relieved of its duty to defend or indemnify under the insurance policy. Here are some practice pointers about this reporting process.
Practice Pointer No. 1: Prompt Notice – Don’t Delay!
Every insurance policy requires prompt and proper notice of claims. Insurers can deny responsibility under the insurance contract if the notice is late and the delay prejudices the insurer’s ability to defend and resolve the claim.
In addition, it can take many weeks for an insurance company to make a decision about whether a claim is covered. An insurance company is not responsible for the association’s intervening legal expenses until after proper, written notice has been provided to the insurer. Therefore, a party defending a lawsuit could incur thousands of dollars in legal fees while defending a lawsuit, which the insurer will never reimburse, unless notice has already been properly given.
On the other hand, an insurance company whose policy covers a claim, will be obliged to reimburse the defendant’s attorney fees between the time of proper notification of the lawsuit and the time that the insurance company assumes the defense.
Practice Pointer No. 2: Make Sure You Notify the Right Party
1. Notification must be made to the insurance company. Notification to an insurance agent, insurance underwriter, or former agent or underwriter may not result in proper notification to the appropriate insurance company. The declarations page and/or the insurance policy provisions will specify the location and manner by which written notice should be supplied. Those provisions are part of the insurance contract and must be followed to trigger coverage. Make sure you include a copy of the demand letter or lawsuit with the notice.
We have addressed recurring issues where notice was provided to only an agent, with the reporting party assuming that was sufficient to notify the insurance company. But the agent is only a conduit for communications between the insured party and the insurance company or carrier. The agent is not the insurance company. Make sure that the agent reports the claim to the appropriate address for the correct insurance company, and insist upon acknowledgment of receipt of the claim from the insurance company, not just the agent.
2. Make sure you notify the appropriate insurers for the claim. Many associations have package insurance policies involving three or four insurers. It does no good to notify a property casualty insurer for a claim involving commercial general liability (CGL) insurance or directors and officers insurance. It is possible to have different agents for each policy. The association may have changed insurance agents (or managers). The current agent (or manager) may not know how or where to notify the insurance company for a policy which is in force, yet was not produced by that agent (or contained in the records of the manager).
There may be circumstances where the insurance policy currently in effect is not the appropriate policy. For example, for a lawsuit addressing events which transpired several years ago, it is the earlier CGL policy, not the current CGL policy, which would respond and provide a defense. The earlier insurer must be notified.
Practice Pointer No. 3: State Who Is Seeking the Defense
The notice of claim must specify on whose behalf the requested benefits of defense and indemnity are sought. Many lawsuits involve multiple defendants. For example, a lawsuit may name an association, board members, the management company and an individual manager. Some or all of them may be additional insureds under a specific policy. If the notice is a simple transmittal email from the management company without any explanation, the insurance company may decide or assume that only the management company is asking for a defense, yet all of the other parties may also be entitled to a defense.
Practice Pointer No. 4: Make Sure They Received the Claim
It is important to request acknowledgment of receipt of the claim in case there is an error in transmission or the wrong company is notified. Plus, you want to document timely notice.
These pointers are all based upon actual circumstances and events. As we all know, it’s all about communication. Properly reporting an insurance claim is a specialized form of communication with significant consequences. Consider consultation with legal counsel when deciding whether, when, how and to whom to report an insurance claim.
The attorneys at Altitude Community Law P.C. can provide guidance concerning the process for properly reporting claims to insurers, and understanding insurance in general. Please feel free to contact us if you have any questions at 303.432.9999.