Sometimes people just don't follow instructions. Even though every insurance policy clearly instructs the insureds on where and to whom a claim should be reported, most agents probably have had insureds contact them instead of the carrier to report a claim. How should you respond if this happens to you?
The first option is to refer the insured to the policy and advise him to report the claim in accordance with policy instructions. But there are risks to this approach.
One, of course, is the customer-service issue. Another is if your client doesn't follow through and report the claim, or if he misunderstands your instructions and the claim is later denied, he will blame you.
So if you choose this "follow the instructions" approach with a client, document your response with a letter to the insured advising him to do as the policy says.
QUICK RESPONSE
It's usually easier—and makes better business sense—to assist the insured and pass the claim along for him. But if you agree to help, do so quickly.
Insurance policies generally require prompt notice of a claim as a condition for coverage. If an insured reports a claim to you, don't let it get buried on your desk. Make sure you forward notice of the claim to the appropriate carrier representative within 24 hours of receiving it.
Time is of the essence in every situation, but depending upon the jurisdiction and the type of policy that may respond to the claim, even a minor delay could result in denial of the claim.
Tell everyone—REALLY
Quite often an insured will report the claim to you because he isn't sure what coverage he has or even where his policy is. Should you accept the responsibility of helping, it will be your job to figure this out.
In most cases, it will be pretty easy for you to determine which insurance policy will respond to a given claim. But it is entirely possible for an apparently simple situation to quickly turn complex.
Consider this scenario: You're writing an errors and omissions policy for another insurance agent. This agent tells you he has just been served with a complaint seeking $3 million in damages due to his alleged failure to provide appropriate coverage for one of his clients.
You report the claim to his current E&O carrier, which has the coverage on a claims-made basis. But the circumstances related to the alleged negligence all pre-date the retroactive date in the policy, so the carrier denies coverage. You apologize to the insured and tell him there's nothing more you can do.
Years pass, the litigation is ongoing, and the insured is trying to defend himself on his own dime. Desperately seeking coverage, his attorney scrutinizes every insurance policy the insured has and finds a provision in a $3 million umbrella policy that suggests it can be deemed "primary" coverage in situations where there is no other "available" insurance, and it does not specifically identify any policies over which it is to be considered excess.
Although you think it can't be correct, you report the claim to the umbrella carrier, which denies coverage because the report is extremely late. Worse, the carrier also issues a coverage opinion stating it would have provided coverage had notification been timely.
Because you originally reported the claim to the E&O carrier—but didn't alert the umbrella carrier—your agency and your E&O carrier just bought a $3 million claim.
What's the lesson? Err on the side of overnotifying any insurance policies that might respond to a claim, especially commercial package and umbrella policies.
DON'T INVESTIGATE Or INTERMEDIATE
After the claim is reported by you and the insurer accepts coverage, your duties are basically satisfied. If the carrier needs to investigate the claim to determine the availability or extent of coverage, be cautious about the role you assume. You are not the insured's public adjuster, and that needs to be clear.
Encourage the insured to deal directly with the insurer rather than use you as an intermediary. Try to avoid advocating for coverage on the insured's behalf. This can be a delicate balance, but try to separate yourself from the carrier's coverage decisions.
The law does not generally impose a duty upon an insurance agent to assist an insured in the claim process. The instructions in the policy for reporting the claim are there for a reason. An insured very well may follow them and deal directly with the carrier without your involvement at all.
But as the old adage says, "If you're going to do something, do it right." Generally speaking, this pretty much sums up the law with respect to your involvement in the claim process. Once you assume the responsibility to assist the insured in the claim process, you must fulfill all related duties.
This article was originally published in the February edition of American Agent & Broker magazine, a sister Summit Business Media publication of National Underwriter Property & Casualty.© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.