Most commercial property casualty claims involve “occurrence”-based policies. These typically include workers’ compensation, commercial auto, commercial property, commercial general liability, etc. The first step in matching up potential coverage is determining whether the actual loss event “occurred” during the clearly stated policy period. If not, no need to read any further into the policy.
Most professional liability, errors and omissions, officers and directors, and employment-practices liability policies are written as “claims-made” policies. Our good friend IRMI defines a claims-made policy as: “A policy providing coverage that is triggered when a claim is made against the insured during the policy period, regardless of when the wrongful act that gave rise to the claim took place. (The one exception is when a retroactive date is applicable to a claims-made policy. In such instances, the wrongful act that gave rise to the claim must have taken place on or after the retroactive date.)”
Policies vary on exactly how they describe when a claim is made. In essence, it’s when anyone in a leadership or management role with the insured business is aware someone is alleging some form of non-excluded negligence with a resulting loss. Even more so if in any form of writing.
This doesn’t need to be a petition or even involve an attorney. Here are some examples:
- A formal notice of charge, such as an EEOC complaint
- A written demand for monetary damages
- A written demand for non-monetary relief
- A civil proceeding
- An arbitration pleading
- A formal administrative proceeding
Bottom line — if such a claim is made during that “claims made” policy period, it must also be reported within that same policy period or risk coverage and defense not being afforded.
The most common of such claims are employment-practice liability (EPLI) claims. Unfortunately, we have had situations where clients do not let us or their carrier know in a timely fashion. At best, carriers refuse to apply any defense costs prior to their notice against any retention or deductible. At worse, they outright deny coverage.
While it’s certainly case by case, one can, and has, advocated the carrier is not prejudiced by the late reporting by itself, assuming no facts or evidence have been altered and no offer or settlement has taken place. More and more courts countrywide are ruling the carrier no longer needs to prove any such prejudice.
Sometimes, I believe our clients downplay the potential exposure of EPLI claims. Often, the involved employee is no longer with the client and/or left on less than positive terms. Perhaps the client doesn’t believe their claim and allegations have merit. If a formal state complaint is filed, it’s often completed directly by the employee, not an attorney. Handwritten. Maybe less than perfect grammar. All of which may lead clients to feel there is no way these will proceed with any merit. Then, by the time the state reviews and comes back with perhaps a “Right to Sue” position, the claims-made policy term has expired.
Don’t get caught off-guard, not covered…nor defended. If in doubt, don’t wait. Reach out to Holmes Murphy to discuss your situation and event. Our first reaction is always how do we best protect you, and in this case, any available coverages and defenses.
