United States: Insurance Policy Review 101 (Part 2)

Last Updated: February 20 2018
Article by Tab R. Turano

Today's blog post by Miller Friel attorney Tab Turano highlights the need for companies to conduct a yearly audit of claims and potential claims as part of the insurance renewal process.  This video explains the importance of timely notice of claims under so-called "claims-made" insurance policies, such as directors and officers policies, errors and omissions policies, and professional liability policies.  While the failure to provide timely notice of a claim may be fatal to insurance coverage, in many circumstances, the need to provide such notice may not be obvious, as highlighted in the video by way of example.  It is imperative that companies focus on notice as a regular part of the process of renewing insurance coverage.  Often times, consultation is with coverage counsel is an important step in this process.

We have included a transcript of the video below:

Insurance Policy Review 101 (Part 2)

As coverage lawyers, we often have clients come to us seeking advice during their renewal process, when they're engaged with their insurance brokers and their insurance companies in either renewing their existing insurance coverage, purchasing additional insurance coverage, or purchasing new insurance coverage. They'll come to us asking for any particular issues that they should be on the lookout for. Sometimes they'll have us review proposed policy language and we can modify the language and make sure that the coverage that they're purchasing is basically, for lack of a better term, state-of-the-art. That's a process that's certainly worthwhile. We do it frequently and we certainly welcome clients to come to us for that issue. But there's another issue that unfortunately is often overlooked by clients during this time period and that is whether or not there are claims that the company's aware of, or certain circumstances that should be reported to their current insurance carriers before those policies expire.

Many insurance policies, including directors and officers policies, E&O policies, pollution liability policies, the list goes on and on. Many policies are written on what's known as a claims-made and reported basis. What that essentially means is that the policies cover claims that are made during the policy period and that are reported to the insurer during policy period, and this reporting requirement, or this notice requirement, is crucially important. If a claim is filed against you during the policy period and you provide notice of that claim after expiration of the policy, there simply is no coverage for that claim. The insurer is entitled to deny coverage completely and this is true whether or not you provide notice a month or a year after the policy expires, or a day after the policy expires. The insurer could simply deny coverage for that claim. Doesn't matter whether or not the insurance company was prejudice by the late notice, there's nothing else that they have to prove to deny a claim, other than the fact that you provided notice of the lawsuit after the policy expired.

And so one thing that we advise clients to do during the annual renewal process is to conduct an audit, look back at the company's operations during the year and determine whether or not there were any claims or any circumstances that need to be reported to their insurer before the policy expires. Sometimes this is obvious. If the company is hit with a lawsuit during the policy period, everyone knows that that's a claim and they know that it has to be reported to the insurance company. But there are times where it's less obvious. We had a client a couple of years ago that received a series of what I would describe as angry letters for shareholders, complaining generally about the client and the value of their stock. These letters made various assertions and demands. Some of the letters simply said, "Please provide me an explanation as to why the value of my shares is declined." Other companies said, "Please provide me information about X, Y, Z." Other letters demanded information about X, Y, Z and some letters demanded that the shareholders be able to immediately redeem their shares in the company and get paid out.

The client came to us and said, "Well, we've got all these letters, 30 or 40 of them. Do we have to report these to the insurer?" Looking at the policy language, the policy, like most D&O policies defined claims to include lawsuits, and arbitrations, and similar proceedings, and it also had somewhat generic language that said that, "A claim also includes a demand for monetary or non-monetary relief." The client's question was, "Are these letters demands for monetary or non-monetary relief?" Again, this is a hugely important question. Although, it might not seem so at the time. At the time you've just got some angry letters. However, let's sort of play the scenario out. One or more of these shareholders who sent these letters decides to file a lawsuit and that lawsuit's filed two years from the date of the letters, well after the policy's expired. And the company would've gone and tended that lawsuit to its insurance carrier who was on the risk at the time, and that insurer would've investigated the claim and they would've discovered these letters that had been written a year or two years prior.

There's a strong possibility that the insurer who received this claim would look at this and say, "This is not a claim that was first made during our policy period." The lawsuit is not the first claim. The claim actually was the letters, those letters were a demand for monetary or non-monetary relief and they were filed during a prior policy period. Of course, it's too late for the client to seek coverage under that expired policy at that point, because you've got to provide notice of it. Ultimately, we reviewed these letters and we advised the client that they should provide notice to their current insurance carrier. Fortunately for the client, nothing ever came of this, no lawsuit was ever filed. But nevertheless, this was the prudent course to follow. Again, we encourage all clients to sort of conduct this type of review during the renewal process and see whether there are any kinds of demands, or other things that need to be reported to the insurance carrier prior to the policy's expiring. Because again, once the policy expires, you're out of luck.

Miller Friel, PLLC is a specialized insurance coverage law firm whose sole purpose is to help corporate clients maximize their insurance coverage. Our Focus of exclusively representing policyholders, combined with our extensive Experience in the area of insurance law, leads to greater efficiency, lower costs and better Results. Further discussion and analysis of insurance coverage issues impacting policyholders can be found in our Miller Friel Insurance Coverage Blog and our 7 Tips for Maximizing Coverage series.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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