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The Importance of Prompt Claim Reporting

Insurance companies have been fighting with their customers over claims since the earliest days of insurance. Some disputes center on what property is covered or what risks are insured against. Others might concern limits of insurance or who is insured. However, with increasing regularity we are seeing another type of problem....late reporting of claims.

What follows is an all too familiar scenario.

The lawsuit papers arrived while the vice president was attending a weeklong planning meeting in Bermuda. Upon her return, she found her desk strewn with reports, correspondence and memos. It was several more days until she uncovered the suit papers. By that time, the deadline for filing an answer was overdue, and the plaintiff's attorney was seeking a default judgment. She sent the lawsuit to the insurance company. A few days later she received a reservation of rights letter pointing out a policy requirement that the insured immediately notify the insurer of all lawsuits, and making noises about denying coverage.

To avoid a scenario like the one described above handle all suit papers like hot potatoes. They are important documents that merit same-day attention. Make sure you establish a standard that any lawsuit will be reported to your insurance company within 24 hours after receipt. Having your general counsel respond to a suit or incident does not relieve you of your obligation to notify the insurer.

Virtually every insurance policy contains a requirement that the insured provide the insurer with timely notice of an occurrence. The violation of this condition can result in a denial of coverage by the insurer. In most instances, the policy requires that notice be given promptly, immediately, or as soon as practicable.

In a number of jurisdictions an insurer must show that it has been prejudiced by a late notice before coverage can be denied. However, the fact that an insurer may need to prove prejudice in order to deny a claim for late reporting should not be relied upon. It is in your best interest to identify and report possible claims-producing occurrences as quickly as possible in order to assure that they are thoroughly investigated and handled effectively.

There are many good arguments for strict compliance with insurance reporting conditions:

It provides the insurer with an opportunity for swift investigation, while evidence can still be preserved and before memories fade.

It affords the insurer an opportunity, on third-party claims, to effectuate an early and economical settlement.

It eliminates a potential area of coverage denial or friction.

In claims made forms, reporting incidents or occurrences can preserve insurance coverage for losses which later blossom into claims.

A person should be designated to handle any incoming claim or suit. When that person is vacationing or ill, make sure there is a backup - someone who scans incoming mail and who has authority to handle lawsuits in the absence of the person who normally shoulders that task.

Claims, unlike fine wines, do not improve with age.

Policy Form Loss Reporting Requirements Comments
Comprehensive General Liability As soon as practicable

How, when, where loss occurred.

Names and addresses of insured and witnesses

Commercial Property Must give "prompt notice of the loss or damage," including a description of the property involved Must notify police of crime, protect undamaged property, inventory, inspection, etc.
Business Auto Prompt notice of the accident or loss Insured must report how, when, where accident occurred.
Union Liability
Fiduciary Liability
Professional Liability
D &O
The insured must notify the insurer immediately of any occurrence that may reasonably be expected to result in a claim. Some language may specify a percentage amount of the underlying insurance which, if exceeded, makes notification of the umbrella insurer mandatory An especially troublesome notice provision found in some umbrella policies is one that places the burden on the insured to determine whether the policy may be triggered and, if so, to give notice as soon as possible.
Bond Notify Insurer as soon as possible Detailed sworn proof of loss within 120 days
Workers Compensation and Employers Liability The insurer requires notice of the injury, cooperation from the insured, and no interference with subrogation rights Complete Employers First Report of Injury.

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