October 20, 2016

Late Notice (part three): Pre-Notice Defense Costs

The Late Notice Trap

In this post, Brian Friel wraps up his discussion of late notice in our series, The Ten Biggest Mistakes Made By Corporate Insurance Policyholders.  The past two videos not only underscored the complexities and the importance of providing timely notice, but also addressed how insurers use the “notice trap” to deny coverage for corporate insurance claims. 

Pre-Notice Defense Costs

In this video, Brian discusses an additional example illustrating how late notice ties into insurance coverage for pre-notice defense costs.  In practice, insurance carriers treat pre-notice defense costs as uncovered, even if they are, in fact, covered.  Failure to provide early notice, not only permits an insurance carrier to raise late notice as a defense, but it also provides the insurer with an opening to further discount amounts they will pay. 

Brian closes the video with a helpful series of tips for corporate policyholders relating to notice.  Watch the video to learn specifically what he recommends.

For a transcript of the video, please see below

Late Notice (part three): Pre-Notice Defense Costs

Let’s look at another consequence of late notice to a company. You do provide notice on their claims-made policy or even an occurrence policy, but it’s late. The carrier accepts coverage, however, under reservation of rights. The carrier says we will cover you. Let’s just focus on attorneys’ fees. We will pay your attorneys’ fees, but not until the date you actually gave notice going forward.

Let’s give a real-life example. Let’s go back to that False Claims Act whistleblower case involving that retailer in a foreign country. They ultimately did give notice based on that subpoena, which ultimately became a formal government investigation against our client. Notice is provided; the carrier initially denied. We became involved. The carrier then modified that into a reservation of rights. However, they would not agree to pay for attorneys’ fees that were incurred prior to the date of notice.

Here’s the problem: The date of notice wasn’t until two years after the initial subpoena. The company had spent over $5 million on attorneys’ fees up until that point. They spent another couple million dollars after that, and they had plenty of insurance limits to cover all of it. The carrier drew a line in the sand all because of late notice.

On late notice or no notice at all, there’s a few takeaway points here, recommendations or tips. First, all companies, including their in-house and outside counsel, have to be vigilant about understanding what their policy says in terms of what are claims and what triggers coverage and triggers notice requirements and obligations. They have to be very vigilant about knowing when a customer complaint letter comes in, or a lawsuit is filed, or a subpoena comes in. There must be some sort of internal control or system that that information gets to the right people, particularly in the insurance group, to make sure that notice is going out either directly from a company, or a counsel like ourselves, or your insurance broker to avoid these situations of late notice or no notice at all.

This is particularly true when you have a claims-made policy program, which most companies do for professional liability policies. Your directors and officers, your errors and omissions, and employment practices liability, every company and every risk manager, or anyone involved with the insurance at that company, and claims, has to be aware of the renewal date. If your renewal date is December 31, or your renewal date is October 31 or June 1, you have to be aware of it.

What we would recommend is, at least 30 to 45 days before, there must basically be a due diligence out to the company and to the different managers and different offices, different corporate organizations, to ask and inquire about any sort of claims that may have come in in the last 6 months or 12 months. Ask the right questions; you’ll be very surprised the answers you might get. To do that near the end of a renewal period is critical, particularly for that claims-made policy.

The second recommendation we’d make is the responsibility for understanding the notice requirements for a policy and getting notice out. It’s not just on insurance coverage counsel specialists like us, or an in-house insurance risk manager. It’s every lawyer, everyone involved with legal claims at a company, both inside the company and outside the company. You could be a general litigator; you could be a transactional lawyer. You have to be aware of insurance that may cover a claim that is asserted against a company. You are obligated and duty-bound to understand what to do in that situation, who to notify with respect to insurance. Everybody is on the insurance team when it comes to providing notice. Give as much notice as possible as early as possible. It’s the best way to go.

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