When and how should your client report a claim under their directors and officers (D&O), employment practices or fiduciary liability insurance policies?
When it comes to claims-made policies, the answer isn’t as straightforward as you might think, Aon Canada notes in an advisory containing best practice tips for insureds.
The advisory recommends that brokers speak to their clients about their policy obligations to report a claim. It also suggests that the insured establish a protocol for reporting claims, no matter what the size of the organization may be.
“Understand the definition of claim in the policy, and review the trigger and notice requirements to ensure they know when, and how, to report claims to their insurer,” Aon advises. “Ensure that information is clearly communicated throughout the insured’s organization by establishing claims reporting protocol. This is critical regardless of the size of the insured’s organization.”
Aon’s briefing note lists many complications arising from reporting under claims-made policies, which do not provide coverage for insurable losses when the losses occur. Instead, they provide coverage for claims made during the current period that the policy is in force.
Claims-made policies are suited to long-tail risks and “can work in the insured’s favour,” Aon notes. For example, claims made today – which may be based on a wrongful act that occurred many years ago – get the benefit of present-day policies that generally have broader coverage because of the soft and highly competitive market in recent years.
But insureds have to be careful, because if they know of a claim prior to a policy renewal and don’t report it to the insurer, their claim can be denied. This may be true whether or not the renewal is with the same insurer, Aon notes.
“Certainly it is in the insured’s best interests to report a claim within the policy period if there is any intention of changing insurers in order to avoid having the new insurer deny a claim on the premise that the matter should have been reported to the old insurer, and the old insurer denying the claim on the basis that the policy had expired,” Aon notes in its advisory.
“There are risks even when renewing with the same insurer: failure to report a claim received during the old policy period could result in a denial of coverage.”
The advisory can be found at:
http://www.aon.com/canada/attachments/thought-leadership/fsg-advisory-vol5-issue25-en.pdf
