We all know the purpose of insurance is to protect your business and livelihood in the event of an alleged error. But what happens if a claim is ever made against you or your firm? What happens next?
No matter what carrier you have, it’s vital to understand the reporting protocols they set forth. Failure to follow practical reporting methods can bear heavy repercussions. Failure to follow reporting protocol could result in the carrier limiting future coverage or worse, denying coverage altogether. Reporting claims properly and promptly will help you avoid paying out of pocket expenses and damages to the claimant(s).
It is standard practice for professional liability policies to state claims must be reported in a timely manner. But, what does timely mean?
No matter how the policy reads, using words like, timely, promptly, or reasonably, it all boils down to the same thing. Once you are aware of a claim against your firm you MUST report the claim to your carrier immediately. Failure to do so could result in the carrier denying coverage, leaving you responsible for any expenses your firm could bear from a claim.
Reporting in a timely fashion is fairly straight forward, but what might not be as clear is whether or not an event is “worth” reporting. The best rule of thumb is, when in doubt, report it. If you discover an error has been made it is best to alert your carrier.
An example of an error that should be reported is an overdraft in the firm IOLTA account. An overdraft puts client(s) funds at risk and could result in a claim. If an overdraft is discovered, immediately replenish the funds, advise your client and notify your carrier.
A more complicated claim scenario is if a client or other party believes the firm has committed a professional error. Keeping with the same scenario, being unaware of overdrafting the firms IOLTA account could lead to a major claim as it’s costing clients money.
It’s important to treat each client or other parties claim seriously but, equally as important, to determine if there is merit to the claim. If the firm believes an error was committed and/or there’s reason to believe the clients claim has merit, that matter should be reported immediately to your carrier.
As important as it is to report a claim in a timely manner and have a strong understanding of when to report a claim, it’s also important to not over report, also known as laundry listing.
There is no set volume associated with laundry listing, rather, it is defined by what is reported. If your firm decides to report multiple claims with no merit just to insure coverage later, your carrier may view this as laundry listing.
Most carriers will not penalize an insured for being somewhat overly cautious, but it’s important to report matters you believe have merit.
Laundry listing can have a lasting effect on your firm and your policy. Your carrier may decide to increase your premium or non-renew your coverage if you continually exhibit risky behavior that warrants a claim.
Additionally, new carriers may look at your claim frequency as a higher risk and decline your application for coverage. It’s important to show that you are diligent in your reporting but also comprehensive in your understanding of what is and is not a claim.
Once you have determined the firm has committed a professional error or, the client or parities claim against the firm has merit, you need to follow your carriers claim reporting guidelines.
Reporting guidelines can generally be found in the conditions section of your policy. Typically, you will want to mail in your claim to the insurers office address as well as in email. The information sent should include your firm name, address, policy number, notice of claim, a brief description of the claim and who the claimant (client) is.
Once you’ve reported your claim, it’s important to cooperate as much as possible with your claims team. Their goal is typically the same as yours, to reach the best possible outcome for your firm.
Failure to cooperate could limit the claims teams ability to reach a favorable outcome for your firm.
Your claims team will do it’s very best to understand the claim against your firm, the alleged error(s), and determine which part(s) of the policy should respond. Your claims team will contact you with additional questions, perform their own discovery, and possibly hire their own experts.
It’s safe to say most of us prefer not to think about our insurance. We know it’s there as a security blanket but hopefully we never have to use it. But, this doesn’t mean we shouldn’t understand how to effectively use the coverage we have.
Failure to understand claim reporting responsibilities is not only detrimental your coverage but potentially to your business and livelihood.
It’s important to know when and how to report potential claims, cooperate with your claims department, and always make sure you’re being diligent in not over reporting.
Failure to adhere to preferred reporting methods could cost you not just your desired coverage for a claim but also increased premiums due the carrier assuming you’re a higher risk.