Policy Trigger in 'Claims Made' Liability Policies
Insureds purchase insurance cover to transfer the financial risk of unexpected events. Insureds, therefore, must be careful not to do anything which could undermine the protection that the policy is intended to offer. Yet all too often, insureds find themselves in difficulty because they have failed to take certain steps prescribed by the policy, either at all, or in a manner compliant with the policy wording.
Over the coming months, Marsh’s complex claims and disputes team will be publishing a series of risk in context blogs which will consider common pitfalls for unwary policyholders and provide tips for avoiding coverage issues. In the first in the series, we look at the policy trigger.
Where a policy is written on a “claims made” basis, the policy that will respond to the insured’s liability, and govern the terms of cover, will be the one in force at the point a third-party makes a claim against an insured.
What Is A Claim?
The policy will probably define what a “claim” is. The definition might constitute civil proceedings, regulatory proceedings, a simple written demand, or even a complaint or expression of dissatisfaction.
An informal email might make certain allegations and seek redress, but if the policy definition of “claim” includes, for example, written demands, such a complaint might trigger cover. Failure to appreciate this policy trigger and notify the “claim” in accordance with the policy requirements may result in loss of coverage.
Even if the complaint does not constitute a claim, the policy and its obligations may nonetheless be triggered if the complaint can be considered a “circumstance”.
What Is A Circumstance?
Many liability policies also contain a “deeming provision”, such that an insured can (or maybe should) notify a circumstance which may give rise to a future claim. Once notified to the insurer, any subsequent “claim” that arises out of that circumstance is “deemed” to be a claim made within the earlier policy period to which the circumstance was notified.
- Review and clarify the definitions of “claim” in your policy wording.
- Set up a system for reporting claims internally so that colleagues understand what to look out for and what needs to be reported internally and to insurers.
- In order to determine whether or not the policy is triggered, liaise with your broker early if you think there is a claim or circumstance which might give rise to a claim.
We will look at notification in more detail in the next article in the series. In the meantime, you can find out more about policy trigger and other policy pitfalls in our paper Professional and Management Liability Insurance Claims: Common Pitfalls for Unwary Policyholders.