by Rickard Jorgensen, FCII, ARM, ACIArb.
From a purely risk management perspective, bringing your insurer into the claims process is extremely prudent and can save you a lot of money. The following outlines reasons why you should contact your malpractice insurer or insurance agent:
- Reporting a potential claim enables your malpractice insurer to work on resolution, which will get you back to business as usual. The insurer may determine that it is appropriate to retain legal counsel to assist with a pre-claim situation. Other services may include preparing a tax penalty abatement request, drafting talking points for communicating the facts of a situation with the client, and providing subpoena and other consulting services if the need arises.
- Taking certain actions without consultation with your insurer can result in a coverage denial. Examples include admitting liability, assuming damages, voluntarily making any payments, or incurring claims expenses. Such actions will likely violate policy conditions, which may result in a denial of coverage. Policyholders should not take action without first receiving guidance from their agent or insurance company.
- Early reporting may trigger the deductible reduction features. Your policy may offer a feature which reduces the deductible if you report claims early or settle claims within a certain period of time (usually 12 months). This could reduce your deductible from 25 to 50 percent.
- Contacting your insurer or agent is a good way to avoid costly mistakes and problems. For example, misstatements on insurance applications may result in a higher premium or even the rescission of a policy based on wrong information. Call your underwriter or agent with questions about the application and the information requested. A phone call is an easy way to correct errors before they occur.
- Taking advantage of your insurer’s risk management tools will help you avoid disputes and claims. Client screening checklists, engagement letter templates and review services, specialized hotline consultations, and documentation techniques are all effective, and the more tools and resources a program provides, the better.
- Early reporting helps assure coverage for the potential claim. Firms that go along with clients in attempting to a handle problem internally without reporting it to the insurer are sometimes surprised to find out later that the problem is much larger than it appeared to be. It is always a good idea to put your insurer on notice of a problem that could become a covered claim and could save the firm money in the form of reduced deductible obligations.
It’s sometimes hard to recognize the signs of a potential claim. Busy schedules and tough workloads can distract your attention. But if the damages are significant and there is no professional liability insurance coverage due to a denial for inadequate or late reporting, it can be catastrophic.
Some insurers provide broader coverage that mitigates the late reporting problem by a modifying the known claims exclusions in the policy. In the CPAGold™ policy it states:
We will pay on your behalf all sums in excess of the applicable Deductible amount stated in the Declarations that you become legally obligated to pay as Damages and Defense Expenses resulting from a Claim first made against you during the Policy Period, or an Extended Reporting Period, if applicable, as a result of a Covered Act committed by you, provided that:
1.1.3 prior to the inception date of this policy you did not have a basis to foresee that such Covered Act might reasonably be expected to give rise to a Claim, unless such Claim became known to you after the issuance of your first Accountants and Consultants Professional Liability Insurance Policy by us and that has been continuously renewed by us.
NB my underline.
This affords coverage for claims that were known after the inception date of the first policy issued.
Many insurers also provide claims triage or claims hotline services. Make use of them and take advice as this may help you mitigate the possibility or magnitude of a claim.
Jorgensen & Company are not attorneys and do not offer any form of legal advice. Consult with appropriately qualified local counsel for more assistance. Rickard Jorgensen is President and Chief Underwriting Officer for the CPAGold™ program and may be contacted at (201) 345 2440 or firstname.lastname@example.org