How to Avoid Common Pitfalls of Liability Insurance Claims
Since the global financial crisis, UK professional and management liability insurance claim notifications made by Marsh clients have risen steadily. Today, they remain four times higher than pre-financial crisis levels.
While less than 1% of financial lines claims made by our UK clients are declined by insurers, when a claim is declined it can be catastrophic, leaving an insured to deal with the financial costs of a claim or loss entirely on its own.
In our experience, the largest proportion of declined claims result from a failure to notify in accordance with policy requirements or timeframes, or at all. Meanwhile, policy terms relating to the triggering of cover and obtaining insurers’ consent to settlements, and non-disclosures, account for almost a third of declined claims.
While the proportion of claims that are declined is relatively small, it is clear that certain key themes recur in most declinatures. Those policy requirements are often mechanical or administrative, but nonetheless should be strictly adhered to in order to reduce the risk of a claim being declined.
In order to reduce the potential for a claim to be declined, insureds should familiarise themselves with the terms and conditions as soon as they receive their policy wording, and not simply when the claim is first made against them (or worse, once it has developed or been settled).
This will allow them to put systems in place for dealing with insured losses in a way that complies with the policy requirements. A written set of procedures detailing how liability claims should be dealt with in accordance with your insurance policy, shared at the outset of the policy period with the relevant members of staff (which may be the risk management and insurance teams, but also complaints and customer service departments), can avoid creating problems which can compromise policy coverage.
In order to assist with adopting your procedures and dealing with third party you should:
- Examine your wording to identify what might trigger the policy.
- Notify your insurers of any claim or circumstance within the correct time period and in the correct manner.
- Seek insurers’ consent before instructing counsel, incurring defence or mitigation costs, admitting liability, or settling any third-party claims made against you.
- Co-operate with reasonable requests from your insurers for information regarding the claim.
- Pay particular attention to conditions precedent.
Aside from avoiding coverage issues, bringing your insurers on board early on in the claim can provide valuable assistance in minimising the financial loss, as well as the reputational damage, that liability claims can bring.
Read our report, Professional and Management Liability Insurance Claims: Common Pitfalls for Unwary Policyholders for more information.