A Lesson in Timely Claims Reporting

  by    0   0

A recent appeals decision denied coverage to a company on its directors and officers (D&O) liability insurance policies for taking too long to file the claim. 

In this case, the 5th U.S. Circuit Court of Appeals in New Orleans sided with an insurer that had denied a claim a company had made after being sued for failing to pay overtime wages to nonexempt employees.

The insurance company had denied the claim because the first employees’ claim was made in August 2014, but the company failed to inform the insurer of that and subsequent claims until September 2015.

This case illustrates the importance of filing claims in a timely manner.

When the employer actually got around to filing the claim it had an in-force D&O policy with the insurer, although there was an earlier policy in force when it had received the first claim of failing to pay overtime.

Under the policy in force at the time of the first claim, the insurer would have been obligated to pay all claims made against the company under the policy.

“That earlier policy would have provided coverage except that the insured failed to comply in 2014 with a notice provision. We conclude the district court was correct to rely on this difference,” the three-judge panel in the appellate court wrote in an opinion that upheld a lower court’s ruling.

Timeliness

One of the critical obligations of an insured is the duty to timely report claims or circumstances that may give rise to a claim. Failure to report a claim in accordance with the policy requirements can result in a claim being denied, or worse, having the entire policy voided.

D&O policies are “claims made” policies, meaning that coverage exists only for claims made during the time period the policy is in effect. Claims made while no policy or extended reporting period are in effect are not covered.

Claims-made policies also have retroactive dates. Ideally, the retroactive date is the day the insured started business, but it can also be the day that it first purchased professional liability coverage.

Assuming the retroactive date has not been advanced, the policy in force when a claim is made is the policy that will respond, regardless of when the negligent act, error or omission took place.

However, there is one important qualifier. This insurance applies to claims that took place after the retroactive date, but prior to the end of the policy period, provided that the insured had no knowledge of the claims prior to the effective date shown in the declarations.

In other words, if you knew of a claim prior to the time you renewed your claims-made policy but did not report it, and if a claim is subsequently made, the insurance company can deny coverage. It doesn’t matter whether or not it’s been continuously renewed by one insurance company, the policy excludes it.

This underscores the importance of timely reporting of all claims prior to renewal each year.


Related Posts

Basics of a Strong Lockout/Tagout Program

Engineer check and control welding robotics automatic arms machine in intelligent factory automotive industrial with monitoring system software. Digital manufacturing operation. Industry 4.0A lockout/tagout program will not be effective if your employees are not properly trained in how it works, and if you don’t have consequences for them if they fail to follow the program.  Every year, hundreds of workers in the United States die because they don’t follow lockout/tagout procedures or their employers did not have […]

READ MORE →

As Wildfire Risks Increase, Insuring Businesses More Difficult

Business property coverage is getting more difficult to come by for operations located in areas that are susceptible to wildfires. The devastating wildfires of the last few years, along with the thousands of homes and businesses that have been burned or damaged due to these events, has resulted in insurers becoming more selective about the […]

READ MORE →

CALIFORNIA: Bureau Recommends Workers’ Comp Rates Drop 5.4%

graph growthWorkers’ compensation insurance rates will likely continue sliding in 2020 after California’s rating agency submitted its recommendation that the state insurance commissioner reduce the average benchmark rates by 5.4%. If the recommendation is approved, it will be the ninth consecutive rate decrease since 2015 (some years had two decreases), which have resulted in the average […]

READ MORE →

Discipline Should Be Part of Your Safety Program

discipline red cardDoes your injury and illness prevention program spell out the disciplinary action your company will pursue if its safety rules are not adhered to? Addressing disciplinary issues can be a very sensitive and stressful process for most managers, supervisors and employees. However, if disciplinary issues are avoided or handled poorly, it can lead to serious […]

READ MORE →

New Law Bars Hairstyle Discrimination

My curls, my crownCalifornia Gov. Gavin Newsom has signed legislation that will make it illegal for employers to discriminate against employees and job applicants based on their hairstyle if it is part of their racial makeup. The law, known as the CROWN Act (Create a Respectful and Open Workplace for Natural Hair), amends the state Education and Government […]

READ MORE →

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to Top