by Aneeta Kumar –
Anytime you are named in a lawsuit or face a possible or actual claim or loss, one of your first considerations should be insurance. Specifically, could the lawsuit, claim or loss trigger coverage under any insurance policies, and if so, which insurance companies should you notify?
A single event or claim may trigger coverage under different types of insurance policies, policies issued in different years, and policies issued to different parties. Depending on the circumstances, it can be important, or even necessary, to notify the insurer as soon as possible. Insurers sometimes try to use any delay to limit or deny available insurance benefits. Whether they succeed will depend on the specific facts and the type of insurance policy at issue.
Under first-party property policies and occurrence-based liability policies, most courts generally have held that an insurer only can avoid its coverage obligations if it can establish that delayed notice resulted in actual and substantial prejudice to the insurer. Pursuant to this “notice-prejudice” rule, the insurer must demonstrate that the delay hampered its ability to investigate or settle the claim, or that there were specific steps it would have taken to defend the claim and reduce the exposure had it received notice earlier. As a practical matter, delayed notice may provide the insurer with arguments to limit payments under the policy for amounts incurred prior to the notice date, but the delay likely will not permit the insurer to deny coverage for the claim entirely.
The notice-prejudice rule, however, might not apply to claims-made-and-reported policies, like many employment practices liability policies, directors and officers liability policies, and professional liability policies. Therefore, delayed notification could more significantly impact your ability to recover benefits under those types of policies. For this reason, as you near the end of each claims-made policy period, you should evaluate if there are any claims or losses, or circumstances that may lead to a claim or loss, about which notice should be provided under the expiring policy.
Timely and prompt notice, consistent with an insurance policy’s terms and conditions, will help maximize the possibility of insurance recovery for losses, defense expenses, and indemnity amounts. So, whenever you face liability exposure or loss, your initial response should include careful consideration of insurance notification issues. It may really pay off in the end.
Aneeta Kumar is an attorney and partner in Kumar & Gerchick. Her practice focuses on representing and advising policyholders regarding insurance coverage matters.