In our latest article of the De-mystifying Insurance series, we focus on simplifying the notification process for financial institutions.
Financial institutions' insurance policies often operate on a claims-made basis (liability policies cover claims arising during the policy term) or a losses-discovered basis (crime policies cover losses discovered during the policy term).
Notification is the process by which the insured makes the insurer aware of a claim, circumstance, or other matter or event that may be indemnified under one of its insurance policies.
When to notify
The timing of notification is crucial. Notification conditions can vary slightly from policy to policy; however, they generally need to be made promptly during the policy period, discovery period (where applicable), or before the end of the extended notification period prescribed in the policy (e.g., 30, 60, or 90 days following the expiration of the policy period, if applicable). This is an additional period after the policy period during which the insured can report claims, circumstances, or events for incidents that occurred during the policy period which the insured became aware of after the policy expired.
Notifications should be given to insurers as soon as reasonably practicable1 after the responsible officer/person or other specified person at the insured (usually defined in the policy) becomes aware of the claim, circumstance, or other matter or event.
Do not delay making a notification
Late notification, i.e., notification which is not made in accordance with policy terms and/or after the expiry of the policy period, discovery period, or extended notification period, can result in the denial of a claim by insurers. Late notification is one of the most common reasons for insurers declining insurance claims. It is important to liaise with your WTW claims advocate (or other contact) at an early stage on identification of a claim or circumstance to avoid issues around late notification.
What to notify
Claim - The insured's obligation to notify insurers is triggered on receipt of a claim. "Claim" is often a defined term in policies and may include wording such as: written demand for monetary, non-monetary, or injunctive relief or damages; civil or regulatory proceedings; an investigation; among other things. This may well predate the letter before action or issue of formal proceedings.
Circumstance - A circumstance is not always a defined policy term, which leaves room for interpretation as to what should be notified. Broadly speaking, a circumstance is considered a fact, event, matter, or state of affairs that may2 or are likely to give rise to a claim.
Notifying a circumstance is usually optional under financial lines liability policies. A benefit of notifying a circumstance is that you can lock in the protection of the policy in respect of future claims arising from the facts of the circumstance, which may attach back to the earlier notification. Not notifying a circumstance can result in it being caught by exclusions in future policy years, resulting in no coverage.
Insureds should consider reviewing their prior claims/circumstances exclusion language to understand the breadth of the exclusion.
Language can vary from policy to policy, and it is therefore advisable to review the policy language and/or notification provisions to understand your obligations so as not to fall foul of these.
How to notify
Once the responsible officer/person becomes aware of a claim or knowledge of the existence of a circumstance, your insurer should be notified in accordance with the terms and conditions of the policy. This could be directly to the insurer or via your broker. At WTW, we work closely with you to make the notification to insurers in line with policy requirements. What is classed as a valid notification will depend on specific policy provisions.
On notification of a circumstance, it may be that the insured is not apprised of all the facts giving rise to the matter or the potential scale of the matter in question. For this reason, the notification should be broad enough to capture potential future claims which may have a causal link to the notification3.
Importance of notifying
Failure to notify insurers of a claim in a timely manner could jeopardise the insured's ability to recover under the policy. Notification in line with policy provisions is crucial.
Both claims and circumstances can influence the risk being insured. Accordingly, WTW will work with you to ensure that insurers are notified of all relevant claims and circumstances in line with policy provisions. The maintenance of an accurate record of the insured's risk profile provides insurers with a comprehensive understanding of the risk they are insuring. This feeds into policy renewal discussions and ultimately renewal terms.
Notification top tips
- Do not delay in making a notification.
- Notifications do not need to include a full set of facts where these are still evolving/being discovered. Insurers can be updated on progress as the facts develop.
- Be clear on the notification provisions of your policy and the specific wording around what needs to be and what can or may be notified.
- If in doubt about what to notify or to discuss notification more generally, contact your WTW claims advocate who will be happy to assist.
Footnotes
1. HLB Kidsons v Lloyd's Underwriters [2007] EWHC 1951 (Comm)
2. J Rothschild Assurance Plc v Collyear & Ors [1998] EWHC 1205 (Comm)
3. Kajima UK Engineering Ltd v The Underwriter Insurance Company Ltd [2008] EWHC 83 (TCC)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.