Policy Pitfalls: Notification
In the second blog in our series on policy pitfalls, we take a look at notification issues in first- and third-party policies, which are a common cause of disputes between insurers and insureds.
Although the courts generally do not like to see coverage declined because of a notification issue, they will nevertheless enforce the terms of the contract strictly.
As discussed in the first article in this series, notifying claims, losses, or circumstances triggers the cover provided by the existing policy period. Early notification benefits the insurer, allowing it to assess the issues and devise a strategy for minimising its exposure.
Notifying Losses and Third-Party Claims
The policy wording should specify how and when to notify a loss or claim. It might specify:
i) The time period in which notification should be given (for example, “as soon as practicable”, “as soon as possible”, immediately”, or “within x days”). The meaning of “as soon as possible” in the context of a liability policy was considered recently in Maccaferri Limited v Zurich Insurance PLC (2015) (for more information, see our bulletin on the right).
ii) To whom notification should be given (for example, the insurer, his agent, the broker, or specific named personnel of the foregoing).
iii) By which method notification should be given (for example, writing, email, telephone, or fax).
The policy wording may include a different process for notifying circumstances. Look for wording such as “circumstances likely to”, or “which may”, or “could reasonably be expected to” give rise to a claim. Each has a different threshold.
Note that, while some policies require notification of circumstances, others merely permit the notification of circumstances. If the notification of circumstances is merely permitted by the policy, this gives the insured the option of notifying circumstances, but means that it is not mandatory to do so.
- Check the notification wording as soon as you receive the policy.
- Identify how and when the notification must be made and the point at which a notification obligation is triggered.
- Set up internal processes accordingly and ensure relevant personnel understand the insurance requirements at an early enough stage.
In the next article in our series we will consider the potential impact of a breach of a notification provision. In the meantime, you can find out more about notification and other policy pitfalls in our paper Professional and Management Liability Insurance Claims: Common Pitfalls for Unwary Policyholders.