All too often it is only when there is a major incident that businesses think about the terms of their insurance. However, it is important that businesses understand their insurance coverage obligations ahead of crises to ensure they don’t inadvertently lose the ability to recoup any future losses through insurance when an incident does occur.
The Need to Notify
One important obligation that insureds must understand is notification. Many policies list notification obligations as a condition precedent to coverage, meaning that if they are not complied with, insurers may have a right not to cover an insured’s claim.
In this blog we set out the common components of notification provisions that can be found in insurance policies, which should be considered when there is any possibility of a claim.
Notification requirements serve several purposes. As an insured, notifying your insurer promptly can help you:
- Preserve your rights and benefits under the policy
- Obtain advice and assistance from your insurer
- Avoid disputes and delays in the claim process
- Comply with any legal or contractual obligations
Claim or Circumstance?
The first step to understanding your notification obligations is to determine whether the policy requires you to notify a claim, a potential claim, and/or a circumstance.
In addition to needing to notify known claims or potential claims, your policy may allow for or, indeed, require, notification of a “circumstance” which could lead to a claim. A “circumstance” may or may not be defined in the policy. Normally, a “circumstance” is a known matter that could indicate a potential for future claims. Failure to notify a “circumstance”, when required, could result in insurers refusing to cover claims found to be arising out of that circumstance.
Awareness is Key
Only if an insured is aware of a claim or a circumstance can it be notified to insurers. Therefore, practically, the risk manager or individual/team charged with the management of your company’s insurance suite must monitor the company’s risk exposure on a regular basis and have a reliable pipeline of information from the business to ensure it is capturing claims, and also possible “circumstances” that could give rise to a claim.
Threshold for Notification
In respect of notifying circumstances, you should also be aware of the threshold for notification required under your company’s insurance policies. You may need to notify circumstances that are “likely” or “may/might” or “are reasonably expected” to give rise to a claim. Determining the threshold required for notification is important to ensure the ability to bring a claim related to the circumstances is preserved.
Making a Notification
Once you determine that either a claim or a circumstance needs to be notified to insurers under your policy, notification will need to be made to insurers.
The best way to notify your insurer is to follow the instructions and procedures outlined in your policy document or contact your insurance agent or broker. You may need to provide written notice, verbal notice, or both, depending on the nature and urgency of the matter. You may also need to provide supporting documents, evidence, or information to substantiate your notification.
You should keep a record of your notification, including the date, time, method, and content of your communication, and the name and contact details of the person you spoke to or corresponded with. You should also keep a copy of any correspondence or documents you send or receive from your insurer.
We also note that insureds are often required to notify any change or development in a notified claim or circumstance. Accordingly, you should liaise with your broker to ensure insurers are kept updated as a notified claim/circumstance develops.
Timing of Notification
Your company’s policy may contain specific wording as to how long your company has to notify insurers of a claim and/or circumstance. If the policy is unclear or silent as to timing, it is recommended that notification is made to insurers as soon as possible.
Notification of a Claim Against Insurers
Not only does your company have to notify insurers of a claim in accordance with the terms of the policy, but your company should also check to see if there is a clause in the policy providing that legal proceedings against insurers must be commenced within a specific period (the period specified can sometimes be shorter period than the usual six-year limitation period for contractual or tortious claims under English law).
Considerations when Negotiating Policy Terms
Insureds should be familiar with the notification obligations in their insurance policies to ensure that opportunities for indemnification for claims and potential future claims are not lost.
When it comes to renewing or placing a new policy, insureds might want to attempt to negotiate the notification wording. The wording of the notification clause should be clear and unambiguous to ensure that the insured knows exactly what to do when it comes to notifying insurers of a claim/potential claim or circumstances that could give rise to a claim.
Under the Insurance Act 2015, the insured must disclose every material circumstance that they know or ought to know or give the insurer sufficient information to put a prudent insurer on notice of the need to make further enquiries. The insured is deemed to know what is known by its senior management and those responsible for arranging the insurance, as well as what should reasonably have been revealed by a reasonable search of information available to the insured. It is typically preferable to seek to limit the knowledge to specific individuals in the insurance team, or the risk manager at the company.
Key takeaway: Compliance with notification requirements under an insurance policy is important. It will preserve your rights and benefits under the policy and ultimately avoid disputes and delays in the claim process.