Boardroom Briefing August 2019
A bad day at the office might look like this: you’ve done financial advice work for a major client but the client’s liaison person has made an appointment with you for a chat. She is just not happy. There is a vague discussion about “possible loss’’. Is this the sort of scenario your PI and D&O Insurer wants to hear about?
Yes, it is. You need to notify not just Claims but also circumstances that could give rise to a claim under your policy. A Claim is usually defined in the policy and includes a written demand or civil proceedings such as a statement of claim, criminal proceedings, or a formal regulatory or administrative proceeding.
Circumstances that might give rise to a Claim are not usually defined in your policy but your Insurer does want to know about them and under Claims made and notified Policy it is vital that you tell the Insurer about those circumstances, even if you think it will come to nothing down the track. The most important rule to remember is Report Early, Report Often.
Why? Your Policy responds to liability arising from Claims made against you or the company during the policy period but also to a Claim made after the Policy expires provided the Claim arises from facts or circumstances notified to the Insurer during the Policy term. This means your company needs a working protocol that escalates Claims, but also circumstances that might give rise to a Claim, up the chain of command to your risk management person and onto your Broker and Insurer.
How? The notification of circumstances should be drafted as widely as possible but not so widely that the Insurer can’t see the nature of the potential Claim against you or the company. You can notify circumstances or facts without identifying the potential cause of action; the important point is that there is an awareness by you and you are making the Insurer aware of those circumstances. Needless to say, a notification can be a hornets’ nest but your Lockton Broker is experienced in helping to frame your notification and identifying what the Insurer needs to know. It is important to identify whether you are dealing with a Claim or circumstances or whether circumstances have developed over time to become a Claim.
Timing? Your notification of circumstances to the insurer is dictated by the Policy or by section 40(3) of the Insurance Contracts Act 1984 which provides for notification “as soon as reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired”. This is why it is essential for the company to have a protocol in place across the business that regularly, or at least before the end of each policy period, identifies any circumstances or Claims that need to be notified to the Insurer or any updates on existing notifications.
Response? The Insurer will come back, via your Lockton Broker, with a confirmation that it has received the notification. The Insurer could ask for more information or even reject the notification. The Insurer has to be kept up to date with any further developments and there may be important questions, such as whether any further developments are part of the already notified circumstances or whether there should be a further separate notification.
The most important rule is - report early, report often.
In brief: Your Lockton Broker can help you: create in-house protocols for notification escalation, notify your Insurer on your behalf, advise around notification complexities, keep your Insurer up to date with notifications and advocate on your behalf if the notification is disputed by the Insurer. Most notification issues can be resolved with a good understanding of the Policy terms and the Insurance Contracts Act.