Most E&O Insurance policies (E&O, D&O, EPL, Cyber) are written on a claims made basis and require timely notice of claims. Clients should understand this, and make sure any demand is immediately noticed to their insurer based on the terms of the policy. A little communication and documentation can go a long ways to protecting E&O insurance benefits:
A title agency received multiple notices from a title insurer of a problem with a title search and a resulting claim, and provided notice that the insurer would hold the title agent responsible for any losses. Based on a strong working relationship with the insurer, the title agent believed the notices were mere formalities. Approximately five (5) years later, the title insurer sued the title agent and the title agent reported it to their title agent E&O insurer. The E&O insurer denied for late reporting and prior knowledge.
A service company received a letter from an attorney representing a recently terminated employee notifying them of alleged wrongful termination and their filing of a claim with the state EEOC. The company believed the claim lacked merit and forwarded it to their counsel. No action was taken and the claim was not reported to the EPL insurer. Approximately 10 months later the attorney requested insurance coverage information and the Company reported it to both the current and former EPL insurers. The prior insurer denied for late reporting and the current carrier denied for prior knowledge.
A more complicated situation involved a professional service company (PSC) and an insurance agent. The PSC claimed it had reported an insurance claim to its agent, but the insurer had no record of receipt. The insurer denied the claim and the PSC went to arbitration with the insurer. The denial was upheld in arbitration and the PSC alleged that it demanded its insurance agent provide compensation. The agent did not respond, and ultimately the PSC sued. The agent reported the suit to its Insurance Agents/Brokers E&O insurer, and the E&O insurer denied for late notice and prior knowledge.
Insurers require timely notice of claims (as defined in the policy) to ensure that the claim falls within the correct policy period and that the situation has not been compromised prior to its involvement. Therefore, professional liability policy provisions are very specific about reporting responsibilities.
In order to prevent claim denials, follow the terms of the policy and these claim reporting rules of thumb:
- Report claims immediately
- Potential claims must be reported (immediately)
- Document everything
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