Claim shall mean that the insured has received notice of legal process, suit, subpoena, or that a demand for money or services has been made against the insured.
Potential claim means the insured has become aware of a proceeding, event or development which could in the future result in the institution of a claim against the insured.
Every professional liability policy contains definitions similar to these. They are followed later in the policy by a clause stating the insured's responsibility to give notice to the insurance company, including the need for that notice to be prompt and to provide copies of any pleadings and reports.
Insurance brokers must know what definitions and notice clauses are in policies provided to their clients. It is very important that these are pointed out to the insured. If the insured does not understand what constitutes a claim and when to report, he or she may default and prejudice the position of the insurance company and, in the extreme, suffer a denial of coverage.
This becomes all the more important when the client is you - the broker - particularly with regard to your own errors and omissions (E&O) insurance. Far too many brokers are taking liberty with this policy responsibility, perhaps as a result of concern over reporting issues that never ultimately develop into a claim.
Just as with a fire, the sooner that an issue is reported, the sooner the experts can begin to address it, hopefully minimizing damage.
Another advantage of reporting correctly is the knowledge and experience gained by insurance companies, keeping them abreast of the legal issues and attitudes. Collecting that information allows insurance companies to better serve you as an insured.
But the real advantages of proper reporting go to the insured (broker). Early action by the company can reduce financial loss, maybe even dismissing the issue before it develops into a real claim.
It is not only the lawsuit type of claim that must be reported. There are many types of potential claims that arise as part of the daily routine. Recognizing and reporting them effectively will be a great advantage to the broker and their insurer.
A broker may become involved in an action by a client against the insurance company.As such, lawyers in that action may request or even subpoena the broker's deposition.
Brokers have regulatory bodies to which they are responsible. On occasion, they may be asked to provide the regulator with a copy of their file on a specific account. Often in the process of dealing with a claim for an insured, the insurance company will request a copy of the broker's file information or perhaps a statement by the broker on how the account was serviced.
In each example, no one directly sued the broker. Still, each may constitute a potential claim for the broker as the issue progresses.
The E&O policy provides more than defence and indemnity. For those unfamiliar with the legal process, there is the advice and guidance of legal and adjusting experts. Advice on how to deal with the client and what to expect in discovery is a must for the rookie in the process; guidance on how to react to requests such as those outlined above, will assist a broker in how to respond, as well as what or what not to say.
Insurance policies may stipulate that a broker not do the following: discuss claims; provide any documents without approval; admit liability; incur cost; provide statements; or discuss settlement without express approval. Those stipulations are there as additional protection for the broker. That advice alone may help prevent an unhappy client from turning into a plaintiff.
The need to report definitely applies when the anticipated claim amount is less than the deductible on the broker's E&O policy. If brokers feel they can handle the issue by themselves based on the amount, they need to think again. Errors and omissions insurers have history replete with examples of "small issues" that have blown up into large dangerous issues.
Even if it is best for the issue to be handled by the broker, there is still the access to advice and guidance to keep the broker safe from future difficulty. Use of a proper and signed release is just one way brokers can protect themselves.
Insurance companies do not punish the broker who reports on the safe side - if issues do not develop into claims, they are not regarded as a black mark against a broker. That said, repeated reporting of a similar type issue may lead to some questions from the carrier or, better yet, some advice on procedures that can serve to assist the broker. Once a claim or potential claim is reported, it becomes largely the job of the insurer. However, that does not mean the broker's responsibility is done.
The broker must co-operate with his or her insurer and respond efficiently to any requests made. It is important that information and/or documentation be provided as soon as practical.
Every broker should have a section in his or her procedures manual on claims. Steps on what to do and what not to do should be included. As soon as anyone gets the feeling or is told directly that there will be further action, legal or otherwise, the claims process kicks in.
That process needs to start with a "one up" reporting rule. No matter who learns about a potential claim, that person needs to immediately advise his or her manager. A meeting of all staff involved in the account should follow.
At the meeting, there should be a general discussion as well as an account from each person regarding his or her involvement in the account. All relevant documentation and information should be gathered and files secured.
All collected information then needs to be sent to the carrier and a single claims contact designated going forward.
The procedures manual also requires a section on what not to do in a potential claim situation. Do not attempt to settle; do not admit liability; do not discuss payment; do not provide documents; and do not discuss your insurance position.
Once the report is made, the carrier will assess and make a coverage confirmation. That is when the policy benefits begin.
The E&O policy is there for your benefit; ensure that you get the most from it. The insurer and its representatives are available to work with brokers.
Remember, payment of defence and indemnity on these claims directly impacts the results of the insurance company. They have no desire to make mountains of molehills.