Today managing partner Brian Friel starts a new series: The Ten Biggest Mistakes Made By Corporate Insurance Policyholders. In this series, Brian discusses the ten most common mistakes that policyholders make when pursuing corporate insurance claims. These mistakes are not limited to unsophisticated corporations. Mistakes are made by companies of all sizes and industries, from regional manufacturing and engineering companies to the Fortune 100 banks and pharmaceutical companies. As a firm with decades of experience in the area of insurance recovery law, we tend to be engaged after something has gone wrong. Our hope is that this series will help corporate policyholders identify areas of risk within the claims process at an early stage, so that an informed decision can be made about the value of insurance recovery advice relied upon by corporate policyholders.
Late Notice
The first issue that Brian covers is late notice. This is a significant issue for corporate policyholders because in some situations, in certain jurisdictions, it may result in the forfeiture of coverage. Unfortunately, notice is complex, and policy language is structured to elicit mistakes, and such errors can result in an otherwise avoidable denial of coverage.
We have divided this first issue on Notice into three short videos. In this first part, Brian addresses the two types of policies, “Claims Made” and “Occurrence.” He also addresses how notice requirements, and the law, can be different for each type of policy. There are major differences between policies as to what kind of event triggers notice, and these differences chan have an enormous impact on when notice is required.
There is a lot to understand about notice, and no video series can fully prepare policyholders for the challenges they may face. Nonetheless, we hope that this helps policyholders understand that notice is complex and difficult. We hope you find this first part on Notice useful. Please look out for future posts on this subject in particular, and for the continuation of Brian’s series.
For a transcript of this video, please see below
For this series, which is called the Top Ten Mistakes Made By Corporate Policyholders, we’re going to cover what we consider here at Miller Friel, the top ten mistakes that we see both in our practice with our own clients that we have to deal with on a day to day basis, as well as mistakes that we see from other corporate policyholders out there in the news, with respect to other claims that we’re monitoring, and we hope by going through this top ten series, we can help not just our clients but other corporate policyholders out there avoid some of these pitfalls in the insurance claims practice area.
The first mistake that we’re going to cover is late notice of a claim, or no notice at all. At the outset, you have to address that there are two types of insurance policies, basic liability policies. The first is claims made, and the second is occurrence policies.
The occurrence policies, in terms of notice, are a bit easier to deal with. These policies tend to be your commercial general liability policies, although it’s not limited to that category of policies, and occurrence policies basically cover any occurrence that may have occurred during your policy period, even if a lawsuit related to that occurrence or some other claim related to the occurrence isn’t filed or made against you for five years or ten years, even twenty years after the policy expires. So even though a claim may be filed five, ten years after your policy expired, your policy may still respond, as long as the occurrence that gives rise to the claim occurred during your policy period.
You do need to give notice as soon as practicable in those policies, and there’s typically a prejudice standard involved, meaning you can be late, maybe it’s six months late. Maybe you’re aware of a claim or have an occurrence, but for whatever reason you didn’t get notice out quickly enough. It’s now six months later, even twelve months later, even two years later. These are fairly late in terms of providing notice to your insurance companies, but if you can establish, or better yet, if the insurance company can’t establish that it was prejudiced because of your “late notice,” you still will be entitled to coverage. So that’s occurrence policies.
The second category of policy, which tends to be a little trickier when it comes to notice, are what we call your claims-made policies. These are policies that only cover claims, which typically are lawsuits, but they could be other things like subpoenas, formal government investigations, customer demand letters, customer complaint letters. These policies only cover a claim that is filed or made against you during the policy period, even though the occurrence or the facts and circumstance that give rise to that claim, occurred prior to your policy but your notice requirement and your obligations tend to be much stricter with claims-made policies than occurrence policies.
When you get a claim typically you have to provide notice as soon as practicable, as soon as possible, but in no event later than the policy period. You got to do it during the policy period or some very, very short time outside the policy period, maybe thirty days or sixty days after your policy expires. If you don’t, in some states, it doesn’t matter if the insurance company was or was not prejudiced. The courts will come out and rule against you on your claim that late notice basically is forfeited coverage.
The first area that we want to cover where we see a lot of mistakes, and it’s so basic and fundamental, is identifying whether a claim, especially in a claims-made policy, has been made against you. The most obvious example is a lawsuit is filed against a company. That, you would think, is pretty obviously, right? You get a lawsuit, it’s usually a big event at a company. It goes way up, all the way to the General Counsel or CFO or even the CEO’s office, but it’s in the C suite of companies. Even then, we find problems.
For example, we have a case right now where a lawsuit was filed against a company right at the eve of the policy expiration, so let’s for example say the policy ran from January 1st, 2014 to December 31st, 2014. The complaint was filed on December 28th. It doesn’t get up to the General Counsel until New Year’s Eve. No one is there in the office on New Year’s Eve. They come back to the office of January 2nd or 3rd, and there’s a complaint sitting at their desk. They give notice. They may be late.
Notice isn’t triggered because the claim, the lawsuit’s filed against you, and you haven’t been formally served yet with summons and complaint. It’s usually defined as a complaint is filed in a court of law. Has nothing to do with whether formal service has been made against you, so just because that complaint which is filed in court is sitting on your desk and you’re away for a week on vacation, you may be late, so there can be very severe consequences even when you have a complaint.
Let’s look at some other claims that are filed or made against companies that trigger your notice requirements, particularly under a claims-made policy. You can have a customer complaint letter, literally a handwritten letter from a bank customer who accuses the bank of some malfeasance, some negligence, some errors with her or his account, and it could be handwritten. That is a customer complaint. That is a claim under most of these policies and while that particular customer complaint letter may not be that big of a deal for most companies, companies don’t know where those complaints end up.
We have seen time and time again very, very large cases, tens of millions of dollars of exposure against a company involving hundreds of customers or investors and it all starts out with one handwritten customer complaint letter. If you don’t recognize that as a claim, and provide timely notice within the policy period, you are going to forfeit. A company will forfeit its entire coverage as a result, so that’s a very tricky area.
Let’s give another example. Subpoenas. These are going to be subpoenas from a court, a regulatory body. They’re looking for testimony or documents. Most often, that’s going to qualify as a claim within the policy, which is going to trigger your notice obligations. But let’s make it trickier. The subpoena is issued to you as a company in a case that you are not involved in, directly yet, right? It’s a case involving a bank, or let’s do a retailer, and you have done work for this retailer over the last ten years. The Securities and Exchange Commission or Department of Justice is investigating this retailer’s operations in say, Mexico or in Costa Rica or in France or wherever. They subpoena you, your company, and the subpoena comes in as Enray Retail Company, XYZ. That’s not you. And they’re asking for documents. You’re not a defendant in that lawsuit, you’re not a target of that subpoena or target of that investigation, they’re just asking you for some documents. Look at your policy. Most likely that’s going to be considered a claim that triggers your notice requirements.
This is what happened to one of our clients. They didn’t recognize it unfortunately at the time that it was a claim, it wasn’t directed at them per se as a target. Eight months later or so, they get a follow up request. Now it’s a letter from the same government official, identifying them as a target in a fraud investigation. Now they are involved directly as a target, as a defendant in that case. Now they give notice. Now we’re eight months after the policy expires what does the insurance company say? Too late. You’re late. The initial subpoena came in eight months earlier. You are out of time. We are going to deny your coverage. Absolutely critical.