Clyde & Co: Brokers Must Ensure Timely Claim Notification

Clyde & Co.’s new article highlights the crucial role of timely insurer notification in claims – made policies, which are common among professional service firms and financial institutions. In such policies, coverage is activated by claims or potential claims reported during the policy period, regardless of when the incidents happened.

Policies usually require claims to be reported quickly, such as “as soon as possible,” “as soon as reasonably practicable,” or within a set number of days. Identifying a “claim” is usually straightforward as it often involves a demand or assertion of rights or damages, making immediate notification necessary per policy terms. But when it comes to potential claims or “circumstances,” things can be less clear since policies might not define “circumstance” clearly.

Some policies permit but don’t require policyholders to notify potential claims, providing coverage if the situation turns into a formal claim after the policy period. Others demand notification of circumstances that could lead to a claim, in line with the duty of fair presentation under the Insurance Act 2015. Failure to correctly notify a claim or circumstance can result in insurers denying coverage, even if there’s no direct harm to them. If notification is late and causes extra costs, insurers may ask the policyholder to reimburse these potentially large costs. Policyholders and brokers must understand each policy’s specific terms and have risk management to enable timely notification for coverage.

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