In many insurance agencies, customer service representatives (CSRs) are responsible for handling claims submissions for clients. Larger agencies may have a separate claims department. Various problems can arise when the agency is notified by a client that a loss has occurred.
There are several things that the agency should do when a claim is presented. First, the Notice of Claim must be timely reported to the insurance company. Second, any lawsuit must be transmitted to the insurance company in a timely manner so that no default judgment is entered against the insured. Third, the insurance company should be notified if other coverage might be available by another insurance company or party. Fourth, the initial claim reporting process should be explained to the client.
The client should be informed that the insurance agency does not decide coverage questions. The CSR or agent should not lead the client to believe that there is coverage for the particular loss. The client should be told that the claim will be submitted to the insurance company immediately and that the insurance company will be in contact with them. In property damage situations, the client should not be given authorization to make repairs prior to the approval of the insurance company, unless the agent has that authority and the authority is clearly set forth in the agency agreement.
The CSR should be trained to understand that all claims are critical and that the processing of a claim to the insurance company should be handled on the same day that the claim was received. If the insured has any duties under the policy for which the claim is being assigned, like the filing of a police report or preserving or protecting property, the client should be told that compliance with these conditions is very important. The client should be instructed to contact the assigned CSR regarding the claim submission if the client has not heard from the insurance company within a reasonable period of time. A specifically designated individual within the agency structure should be selected to receive this type of information so that there is a unified reporting protocol. However, there should be a prompt to the CSR to contact the client within 72 hours to independently determine if the client has been in touch with the insurance company. Never affirm or deny coverage.
The courts in many jurisdictions take a liberal view of the requirement of notice permitting the actual time frame in which to provide notification of a pending lawsuit to have significant elasticity. In some states, even though the policyholder provides late notice of a pending lawsuit, the courts require the insurance company to prove actual (not just presumed or anticipated) prejudice arising from the delay.
However, some states have strict claim reporting requirements. As an example, Nevada is not that lenient and CSRs/agents in Nevada must understand the stringent notice requirements to preserve the client/policyholder’s right to seek a defense and indemnity under their liability insurance policy where the claim/lawsuit is reported to the agency.
In State Farm Mutual Automobile Insurance Company v. Cassinelli, 67 Nev. 227, 216 P.2d 606 (1950), the insured was involved in an automobile accident in which the insured was a passenger while his son was driving. The driver of the other car sued the insured and his son for the injuries which she suffered as a result of the accident. The lawsuit was originally served on only the insured’s son but was later amended to include the insured. Just less than four months after the complaint had been amended and the insured was served, the insured notified the insurance company of the suit. The only reason for not notifying the insurer prior to this point was that the insured believed the policy had lapsed and he was insured by another company.
One of the primary issues before the court in Cassinelli was whether the insured was precluded from recovering based upon his failure to give the insurer notice of the suit until almost four months after it was commenced. The insurance policy required the insured to give notice of claims or lawsuits “as soon as possible.” The policy made timely notice a condition precedent to coverage.
After examining case law from other jurisdictions on this issue, the court in Cassinelli found that recovery under the policy was conditioned upon the insured’s compliance with the requirement that notice be given after being served with the suit. Therefore, the insured was precluded from recovering because he failed to comply with the notice condition of the policy when the insurer was not given notice until four months after the insured had been served, irrespective of whether the lack of notice prejudiced the insurance company.
Some standard liability insurance policies do not contain specific language making timely notice a condition precedent to coverage. While the Cassinelli court suggests that such notice requirements are, due to their nature, a condition precedent whether or not such express language is used, the court specifically refused to rule on this issue because of the existence of the “condition precedent” language in that policy.
‘As Soon As Practicable’
The typical policy provides that notice must be given “as soon as practicable.” Although Nevada case law is clear that “immediate” allows for a reasonable lapse of time under the particular circumstances of the case, there is no Nevada case law regarding what is meant by “as soon as practicable” or any other similar language. However, courts from other jurisdictions have held that “‘the words ‘immediately,’ ‘forthwith,’ ‘promptly,’ [and] ‘as soon as practicable[ ]’ all require notice in a ‘reasonable time.'” West Bend Co. v. Chiaphua Industries, Inc., 112 F.Supp.2d 816, 822 (E.D.Wis. 2000). See also Flores v. Allstate Texas Lloyd’s Co., 278 F.Supp.2d 810, 815 (S.D.Tex. 2003).
While the timeliness of notice may often be a question of fact for the jury to decide, it has been held that a delay can be of such a nature that it is unreasonable as a matter of law. For example, in Cassinelli, the court conceded, for purposes of argument, that the insured’s failure to provide notice of the accident was excused by the fact that the insured did not have any intimation that liability would be claimed against him. Nevertheless, the court held that despite the fact that the insured believed the policy had lapsed and he was insured by another company, a four month delay in providing the insurer with suit papers was not a reasonable time period as a matter of law.
Although the allegations of a lawsuit may not appear to be covered, a secondary benefit of liability insurance is the insurance company’s policy obligation to defend. Often, the insurance company may provide a reservation of rights defense at the insurance company’s expense when it receives notice of the lawsuit. Every agent should attempt to preserve this benefit by immediately notifying the insurance company of the suit. In order for a defense to even be considered by the insurance company, timely notice of the lawsuit must be provided. Failure to provide such notice in a timely manner could expose the agency to a malpractice claim where, even though no indemnity coverage is applicable, a reservation of rights defense may have otherwise been provided by the insurance company, thereby eliminating unnecessary litigation legal fees and costs to the client.
Because different states have different tolerances to an insured’s obligation to report a lawsuit to their insurance company, it is important for the agency to have a specific protocol in place for the management of reporting and documenting claim submissions on behalf of clients to the insurance company. Where the insurance company denies coverage and a defense to the client because of a late notice problem, the likelihood that the agency will face an allegation of malpractice increases because the client is responsible for paying mounting legal bills and expenses for something that they thought was otherwise covered.
A common allegation made against agencies in this context is that the agency did not fully inform the insured of the importance of claim reporting. It is very common for business insureds to have their own retained lawyer defend them in the lawsuit initially without realizing that the insurance policy provides for a defense expensing. It is common that at some point when the legal expenses an bills are mounting, the light switch is turned on to the idea that maybe the claim should be submitted to the insurance company. When the insurance company denies the claim due to late notice, clients, in increasing numbers, present a claim against the agency for failure to properly advise regarding the importance of reporting claims and the availability of defense expensing under the policy for covered claims.
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