In all likelihood, you devote a substantial (and alarming) amount of money each year to insurance. Knowing when and how to notify claims and circumstances to an insurer is imperative to take full advantage of your cover and protect your business against a wide range of risks.
Importance of notifying under claims made policies
Policies written on a ‘claims made’ basis (e.g. professional indemnity, management liability and directors’ and officers’ liability insurance) are valuable tools in managing the risks associated with running a business.
Claims made policies offer cover for your business, along with its directors, officers and employees, for liability arising from claims made during the policy period. These policies also cover claims made after the policy period has expired, provided the claims arise from facts or circumstances notified to the insurer during the term of the policy.
If you believe an issue, action or event is likely to materialise into a claim sometime in the future, you should notify your insurance broker immediately rather than waiting for the claim to occur. By doing so, you are:
- Preserving your right to claim under the current policy at a later stage, even if you decide to change insurers; and
- Protecting your business against a change in insurer appetite towards underwriting certain risks.
Knowing when and how to notify
A prudent rule of thumb is to draft the notification as explicitly and widely as possible. It should capture all circumstances in respect of which you have an awareness of the possibility, however remote, that a claim might arise. This will maximise your chances of attaching a subsequent claim back to that previous notification.
If you haven’t done so before, take this opportunity to familiarise yourself with your policy wordings (also referred to as product disclosure statements) and the conditions regarding notification. Keep a copy of your policy wordings, schedules and certificates on hand – you never know when a potential claim or circumstance may arise.
Understand the timing of notifications, how and when a notification must be made, the distinction between a claim and a circumstance, and the point at which a circumstance becomes notifiable. Look for phrases such as ‘circumstances likely to give rise to a claim’, or ‘which may give rise to a claim’.
Also use this time to examine your internal processes for identifying claims or circumstances which may give rise to claims. Best practice suggests that a business should inquire regularly, or at least once before renewals (i.e. before the end of the policy period), of all relevant individuals and departments as to whether they are aware of any claims or potentially notifiable circumstances.
Trending industry example
In the wake of the Grenfell and Lacrosse building fires, the issue of combustible cladding has received significant media attention, especially following the introduction of new legislation throughout Australia. The issue has generated heated debate about who is liable in the event of a disaster and who should bear the cost of replacing any existing non-compliant cladding on affected buildings. Building owners and the government will seek to pass these substantial costs on to businesses and, if possible, their insurers.
The first finding of professional misconduct in relation to the use of combustible cladding was made earlier this year by the Victorian building regulator and the issue of liability with respect to the Lacrosse building is currently being hotly contested in the Victorian Civil and Administrative Tribunal.1
As Federal and State legislation and regulations become increasingly more complex, this leaves businesses and professionals at risk of significant exposure. Those involved in the design, construction and certification of buildings are vulnerable and may need to fend off rectification orders, findings of professional misconduct, breach of contract claims and actions seeking to recover the costs of recladding.
Claims and circumstances of this nature may fall under a number of policies of insurance, in particular professional indemnity insurance. However, directors’ and officers’ and management liability insurance will play an increasingly important role as the appetite to hold directors and executives personally liable grows.
In the current uncertain and ever-changing landscape, we recommend taking pre-emptive and proactive action to understand the scope of your cover and your notification obligations. As the fallout from the ‘cladding crisis’ widens, insurers may choose to stop writing risk for affected industries or limit their scope of cover for building works using non-compliant products. This signifies the importance of notifying early with a view to attaching subsequent claims to the current policy period.
Do you have any concerns?
If you are uncertain about whether a claim has been made or a notifiable circumstance has arisen, seek immediate and early advice from your insurance broker, with a view to notifying your insurers. Your broker works for you, not your insurers, and is well placed to provide guidance on how to proceed.
We are able to assist you in drafting a notification designed to trigger your insurance now and protect your interests moving forward. Your business may also benefit from risk profiling and gap analysis, aimed to address any potential under insurance or underlying risks.
This article was written by Andrew Cheetham, Partner and Jennifer Robbins, Associate.
1 Owners Corporation No.1 of PS613436T, Owners Corporation No. 2 of PS613436T, Owners Corporation No. 4 PS613436T & Ors v Lu Simon Builders P/L, Stasi Galanaos, Gardner Group P/L & Ors (BP350/2016).
| Andrew Cheetham
P: +61 7 3169 4785 E: acheetham@hwle.com.au |