Articles | March 15, 2024

Insurance Coverage Type Determines When to Notify Carriers

One of the more difficult issues insurance policyholders face is when to notify carriers about claims. While experience tells us that sooner is almost always better, knowing what constitutes a claim is not as straightforward as it may seem. The definition of a “claim” varies depending on the carrier, policy type, and policy form, and it may include lawsuits, regulatory investigations or proceedings, written demands for damages, data incidents or a combination of these. Potential claims – or even circumstances that simply increase the possibility of a claim – sometimes warrant notifying your carrier.

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Failure to provide notice on a timely basis may result in either loss of certain coverage or outright denial of otherwise covered claims.  Late notice is not a precisely defined term but, generally, may be considered any period after that specified in a policy. However, many states also require that the carrier demonstrate that the late notice has caused it financial harm, meaning that the late notice did or will directly affect the amount of the paid loss.

In short, it is safe to assume that placing a carrier on notice as soon as you become aware of a claim or the circumstances that may give rise to a claim is the most prudent approach. However, you should consult with your legal counsel to determine the best course of action for the specific circumstances.

Here are our observations about timing notices depending on the types of coverage.

Cyber liability insurance

Notice of a data event (or a social engineering fraud loss, if such coverage is provided under the policy) may trigger outreach and support by carrier’s professional expert team as a service included in the policy, so it is in your best interest to give the carrier notice of an event as soon as you become aware. Even if you only suspect that your organization has experienced a data breach and are still collecting the facts, notify your insurance carrier and/or broker as soon as possible.

Fiduciary liability insurance

In addition to claims and circumstances that may give rise to a claim, you should file a notice with your carrier as soon as possible if, for example, you become aware of:

  • Regulatory actions (such as receipt of a “10-day letter” from the DOL identifying actual or potential breaches)    
  • Allegations of failure to prudently invest assets or of a lack of investment diversity 
  • Issuance of a subpoena

Employment practice liability insurance (EPLI)

You should consider filing notice of these claims immediately, because we have observed that the longer an EPLI claim is outstanding, the more expensive it will be to resolve. This is especially true during times when hiring decisions may fluctuate and allegations of discrimination, retaliation, failure to hire and wrongful termination may arise. 

Directors & officers and multi-coverage liability insurance

During a moment of crisis, making tough decisions that balance the needs of key stakeholders can sometimes lead to greater risks (and claims) against insureds, their employees, and their organizations. Many policies include a “duty to defend” that is broader than the duty to reimburse claims. However, when deciding whether to take control of defense of a claim or tender it to your insurance carrier, you should refer to the policy as soon as possible to determine any time constraints.

Fidelity bonds or crime insurance

Generally, you should file a notice of loss as soon possible and a proof of loss within the timeframe specified under the policy. Timing and other obligations can vary by carrier and policy form. 

Sponsors of public sector plans need to consult legal counsel to determine their specific state employment dishonesty bond requirements.

How we can help

If you have questions about the value of notifying insurance carriers promptly about claims for any of the types of coverage listed above or concerns about the implications of giving notice of a claim, please contact your Segal insurance broker. 

We’ll provide assistance to help you think through some of the coverage issues. In addition, Segal can help you prepare for filing a claim with an insurance carrier and determine what the carrier needs in response to the receipt of a claim, but only the insurance carrier can determine its final position. Because insurance policies are legal contracts, legal counsel always should be consulted if issues arise with carriers or claims.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.