Business Practice Tip: What to do When the Agent is Notified of a Loss

Kathleen M. Bonczyk

Many insurance policies include contractual language similar to the following:

Your Duties After Loss. In case of a loss, you must see that the following are done:

a. Give timely notice to us or our agentaEUR|

(Emphasis added)

Or

Your Duties in Case of a Loss. If you suffer a loss, you must see that all the following are done:

1. Give notice of the loss to us or our agent as soon as is practicableaEUR|

The aforementioned examples provide the insured with the option of notifying either the insurance company directly or the agent in the event of a loss. The issue of affording timely notice in the event of a loss is important for many reasons, not the least of which is that if the insured fails to do so, the claim may be denied.

According to one Court, aEURoeThe reasonableness of the notice must be determined on a case by case basis" Owen v. Allstate Ins. Co., 250 A.D.2d 1018 (1998 N.Y. App. Div.) aEURoeUnder certain circumstances, late notice of a claim may be excused; the insured, however, bears the burden of demonstrating the reasonableness of such excuse.aEUR? Id.

If the insured is unable to meet this burden, a Court could find that the late notice resulted in prejudice to the insurer, which could then result in the Court determining that there is no coverage for the claim.

Consequently, in situations where the insured brings a lawsuit for Breach of Contract, Declaratory Relief, or first party action against the carrier for denying the claim, the timing and circumstances surrounding the reporting of the claim will likely take center stage.

When a loss occurs, the insured may pick up the telephone and call the insurance carrier directly. The reporting of a loss, however, may constitute the first time the insured is contacting the carrier directly. Thus, after reviewing his or her duties after loss, the insured may elect to contact the person with whom he or she has an established relationship, namely the insurance agent.

If a subsequent disagreement or litigation arises regarding the insuredaEUR(TM)s duty to report a loss in a timely manner, the insured may argue that the carrier was first put on notice of the claim when the call was made to the agent. Thus, unless the agent is bestowed with the authority to investigate the claim on behalf of the insurer, it is imperative that the agent have a paper trail showing that he or she, in turn, notified the insurance carrieraEUR(TM)s Claims Department, or other designated contact, in a timely manner.

Although insurance agents should confer with an attorney in their jurisdiction to ensure that they are compliant with all applicable laws, the following general tips may be helpful to the agent in situations where the policy allows the insured to report a claim to the agent:

1) Ensure that all your staff, including non-licensed individuals such as Receptionists and Secretaries who may be the first point of contact with your clients, are trained to advise you immediately of any reported claims.

2) If the carrier has provided you with a form or specific instructions on the steps to take in the event of a reporting of a claim to you directly, be sure to follow these directions verbatim. Then be sure to maintain records demonstrating that you have done so.

3) If a carrier has not advised of what measures you are to take in the event a loss is reported to you, ask your contact at the insurance company what you are supposed to do in the event of a reporting of a loss. Then, get these instructions in writing.

4) Do not make coverage decisions. Insurance contracts are legal documents. What you believe is covered may be something entirely different that what a judge ultimately determines in a subsequent lawsuit. Thus, even if you feel the loss may not be covered, you still should encourage the insured to report the claim and do so yourself.

5) Verify all pertinent contact information. For instance, your client may have changed his or her cellular phone number or email address since the time the insurance application was taken out. Make sure you have current contact information, and be sure to pass on any changes in contact information to the carrier. This may help alleviate headaches later on when the adjuster attempts to make contact with the insured regarding the claim.