Liability policies written on a ‘claims made’ basis require special care and attention when completing an application for coverage. The reporting conditions of this type of policy require that any claim or incident which could give rise to a claim must be reported when you first have knowledge of it. Any written demand for damages or services or a statement of claim served upon you must be reported immediately. Failure to report a claim or incident that may result in a claim can result in denial of your claim under the reporting provision of a claims made policy.
The recommendations below are intended to help you understand how a liability policy that is written on a claims made basis works and important considerations to make when completing an application for a new policy or at renewal.
Recommendations for New or Renewing Claims Made Policies
- A claim is a defined term which may include verbal or written allegations whether in the form of a discussion with a claimant or client, a demand letter, or in the form of a legal proceeding such as a statement of claim. If you are uncertain whether the communication you received constitutes a claim, reporting is required.
- The second element which you must consider is where there is an incident or occurrence which could give rise to a claim in the future. Liability claims for this class of business often take months or years after the event itself to conclude. Failure to report an incident promptly may jeopardize the insurer’s investigation and defense of a subsequent legal action.
- To avoid the risk of an insurer denying a claim due to late reporting, policy conditions require that you report all incidents promptly. Do not wait for a letter of demand or a statement of claim.
- Reporting is required for any error, omission or negligent act which could be the basis of a claim.
- The knowledge by any person in the firm of any act, error or omission, regardless of actual or potential loss size, that could have any possible liability or cause of action against the firm must be reported.
- Any verbal or written complaint or allegation or implication of wrongdoing or dispute over payment made by a client, client’s attorney or any other person or legal entity constitutes a reportable claim.
- All relevant employees must be canvassed whether or not they have any knowledge of a claim or an incident which could give rise to a claim. This will prevent incidents where employees had knowledge of a potential claim but did not advise management.
We recommend downloading the Declaration Form below to use as part of your record keeping procedures. When you are applying for or renewing a claims made policy this form can be used to canvas your employees to determine if they have knowledge of a claim or incident that may give rise to a claim.
Recommendations for when you choose to not renew your claims made policy
There are important considerations to make when you decide that you do not want to renew your claims made policy or cancel coverage for any reason. After the expiration date of your policy you only have a short window of time you can report claims for work completed prior to the expiration date of your policy. Your policy must be effective and in force when a claim is reported versus when the actual loss occurred. The following recommendations are made to help you understand how the claims made policy works when you cancel or do not renew your coverage.
- It is important to renew your coverage on time to avoid losing all prior coverage due to a gap in your policy term. Even when taking a short hiatus it is important to maintain your coverage for work that was done in the past.
- Purchasing an extended reporting period is recommended when deciding to retire or take a hiatus from operations. This will ensure that you will be able to report claims for work done prior to the end of your operations. An extended reporting period extends the time that you are able to report claims for past work. In the absense of an extended reporting period your ability to report claims will end shortly after the expiration date of your policy.
- Review your contractual obligations for insurance coverage. If you have entered into a contract that states that you will be covered for a certain period of time after the completion of work you will need maintain your coverage for that period of time. If you are ceasing operations ask your broker about purchasing an extended reporting period that will cover your contractual obligations.
- If you are switching to another Broker and you will also be switching the insurance carrier for your coverage it is important to ask the new broker to negotiate continuous coverage. If this is not done, the new policy will only cover losses from the start date of the coverage and you will lose all coverage for work completed prior to your new policy effective date. If you are switching carriers with Toole Peet we negotiate this for you.
If you are cancelling or allowing your claims made policy to lapse please speak with your broker about the option of purchasing an extended reporting period to ensure that you do not lose all coverage for work done prior to the expiry date of your policy.
