Author: Nancy Germond 

Agents understand the obligations your insureds have in each of their policies to report a claim promptly. This is an obligation found in the conditions section of the policy. As such, reporting a claim to the carrier is a contractual requirement. Very often, however, your clients do not read their policies and if they do, may not understand the importance of reporting incidents that might give rise to a claim.

For example, your insured bumps into another vehicle in traffic. The driver of the other vehicle tells your insured, “I don't see any damage," but obtains your insured's insurance information. A few weeks later, the other driver reports a claim directly to the insurer for bodily injury after treating with a chiropractor for her sore neck.

Whether or not it says that the insured must report all claims “promptly," or “as soon as practicable," or within a certain specific period of time is not as relevant as the fact that it is a condition to do so. In the above example, the carrier may not invoke the condition and try to avoid coverage because the lack of the report did not damage the carrier's ability to manage the claim. That's not always the case, however.

If your insureds do not comply with the reporting condition, they may be facing a serious problem – a reservation of rights letter or an outright claim denial from the insurer. Especially when the untimely claim report compromises the claim investigation, your carrier may deny the claim based on your insured's failure to timely report. Additionally, if your insured fails to disclose a claim when applying for coverage or at renewal, and the insurer discovers that failure, the insurer may rescind the policy. Claims reporting, then, is a critical component of policy management.

The Real World of the Insurance Agent

In today's increasingly hard insurance market, two water damage claims can cause your insured's non-renewal. An insured who backs into his own tree may see his rates go up for three years after submitting an $850 claim on a policy with a $500 deductible. There is no absolute right answer for when an insured's claim should go to the carrier. Like everything in insurance, “It depends."

Many agents today offer claims advocacy as one of their selling points. Guiding the insured through reporting and through the life of a claim can set an agent apart from her competitors. However, claims advocacy increases an agency's risk. Agents must be able to assist the insured, carefully documenting what they recommended, while still complying with their obligations to the carrier.

Considerations in Reporting

Not only does your insured have contractual conditions in their policy, but your agency agreement with the carrier will also contain language outlining your duties as an agent. Failure to comply with that language, no matter your reason, can have serious consequences for your agency. Your carrier is entitled to all pertinent underwriting information, including claims history.

Nowhere is this more relevant than in workers' compensation injuries. When an employee sustains an injury that requires only one doctor visit such as a foreign object in the eye, some insureds will elect to pay that bill in-house and not report the claim to their workers' compensation carrier. While this may seem like a good idea because injury frequency affects the organization's experience modification factor, the insurer needs this information to help set appropriate rates. Never suggest that your insureds handle small injuries in-house.

As an agent, you have duties to your carriers to act conscientiously. As brokers, you must comply with your agreement with your carriers. To do otherwise means your errors and omissions (E&O) carrier or the insured's carrier may come back to collect from you.

Common Wording of Agent's Duty to Report

Producer agreements with insurers require reporting. Here is an example from one contract under the list of producer responsibilities. “To forward to us immediately any written notice you receive of any policyholder complaint, claim, suits, or proceedings against us and not respond on our behalf to any such complaint, claim, suit or proceeding."

According to one risk management expert, the agent should also consider the Unfair Claims Practices Acts of various states and National Association of Insurance Commissioners' protocols. “These regulations dictate claim handling protocols for the insurer. If the producer fails to relay the incident – though not yet a 'claim' but a 'potential claim,' the producer is obstructive and subject to an E&O claim and potentially in violation of its contractual responsibilities to the upstream insurers and wholesalers," she advised.

According to expert witness Kevin Quinley, “Big trees can grow out of small acorns. When in doubt, report it out." Wise words to follow.

Insured's Refusal to Report or “I Want to Wait and See"

What if the insured refuses to report? In this instance, it's best to write them outlining your conversation and your advice to report, quoting the pertinent policy provisions that apply to claims reporting.

For example, in the commercial general liability (CGL) form in Section IV – Commercial Liability Conditions, this wording sets out the insured's reporting duties.

“2. Duties In The Event of Occurrence, Offense, Claim Or Suit

a. You must see to it that we are notified as soon as practicable of an “occurrence" or an offense which may result in a claim. To the extent possible, notice should include:

1. How, when and where the “occurrence" or offense took place;
2. The names and addresses of any injured persons and witnesses; and
3. The nature and location of any injury or damage arising out of the “occurrence" or offense."

I would then quote the definition of “occurrence" since the policy defines it.

“'Occurrence' means an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

If the incident involves an offense such as a false arrest or an eviction situation, the CGL does not define “offense." You can encourage your insureds to review their personal and advertising injury section in their policy.

Consistency is Critical Among All Agency Employees

Some agents tell their insureds not to report small claims because they want to protect them from a rate increase or cancellation. That strategy can backfire against the agent if the incident later blows up.

One of the best reasons to develop an agency procedural manual is to promote consistency among all employees. All your employees, from your receptionist to your customer service reps and your most experienced agents should be on the same page with claims reporting. Documentation is key in the event of a claim problem. All employees should document all conversations in your agency management system, including conversations regarding claims they have with their customers.

All employees should be aware of your claims procedures and should feel free to ask for guidance when they run into sticky claim issues. Every employee should be keenly aware of the dangers of not reporting losses to the carrier. Advising an insured not to report a claim can create a serious errors and omissions exposure for your agency.

For an overview of claim reporting on an item that appears on the news about your client, visit this Big “I" link to an Ask an Expert question.

Claim Reporting Overview

While we want to keep our insureds informed and provide the best level of service we can, failing to report a claim can be extremely problematic. For our Swiss Re policyholders, watch Avoiding E&O Exposure When Advocating for Customer Claims on the eoguardian.com website.

As one expert noted in the above webinar, ask yourself this: “Are you advocating or are you falling on the sword?" If you're simply urging the carrier to seek clarification, or providing additional details, that's probably within your role as their agent. Avoid putting your opinions in writing; it's much better to use the telephone. Writing letters may create liability where there is none, giving the impression to your client that you did something wrong.

Here are some actions that can violate the conditions in your E&O policy.

• Providing documents to anyone without directions from your E&O carrier's claims department.
• Responding to subpoenas without discussing this with your E&O carrier.
• Admitting liability or paying a claim out of pocket because you feel you made an error.
• Not reporting a potential E&O claim to your E&O carrier.
• Providing a recorded statement or deposition in the matter without your E&O carrier's involvement.

If in doubt about a claim denial or coverage decision, remember the valuable service of the Big I Virtual University's Ask An Expert service. We have many insurance coverage specialists eager to help you.

Last Updated: March 31, 2023

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