When is it time to notify the Professional Liability Carrier?

From Adam Puharic, president of Puharic and Associates, Inc. Insurance and Risk Managers

For over 16 years, I’ve filed claims on behalf of Engineers, Architects, Surveyors and Environmental scientists and contractors.  I’ve seen insurance carrier response run the gamut from excellent to inept.  Thankfully far more of the former than the latter.

One issue that is often discussed and debated between clients, carriers and their agents is: “When does a complaint cross the border into a claim?  When can I not resolve this issue by revising our work product?  When does unhappiness cross over into damages?”

Let’s try to answer that by starting with the definition of a claim.  According to one of our frequently engaged carriers, “the insurance applies to a covered Claim, only if:
1. The Claim is first made against the Insured during the Policy Period and first reported to the Insurer, in writing, as soon as practicable during the Policy Period or during the Automatic Extended Reporting Period.
2. The Wrongful Act or the act giving rise to the Pollution Incident was committed on or subsequent to the Retroactive Date.
3. None of the Insured’s directors, officers, principals, partners or insurance managers knew or could have reasonably expected that the Wrongful Act or the act giving rise to the Pollution Incident might give rise to a Claim, either prior to the inception date of this Policy or the inception date of the earliest policy issued by the Insurer that has been continuously renewed.”

But there in lies the rub.  What if a client emails you and is unhappy with part of the work?  What if there is a work around?  What if they are unhappy with another party to a job, which you also had a role in?  Most importantly, is a complaint a claim?

According to the same policy form, “Claim(s)” means:
1. A written demand for monetary, non-monetary or injunctive relief against any Insured;
2. A civil proceeding against any Insured commenced by the service of a complaint or similar pleading;
3. A formal administrative or regulatory proceeding or investigation against any Insured commenced by the filing of a notice of charges, formal investigative order or similar document;
4. A written request received by an Insured to toll or waive a statute of limitations.”

So, the answer lies in whether the complaint meets any of those four conditions.  If it does, the time has come to notify the carrier.

Regarding giving notice, the policy form states that:

1. “In the event of a Claim(s), prompt written notice containing particulars sufficient to identify the Insured and all reasonably obtainable information and documentation with respect to the time, place and particulars thereof, and the names and addresses of available witnesses, shall be given by or for the Insured to the Insurer.
2. If a Claim(s) is made against the Insured, the Insured shall promptly forward to the Insurer every demand, notice, summons, order or other process received by the Insured or the Insured’s This requirement continues throughout the life of the claim.”

In summary, we must cooperate, and we must provide any and all files that may help a carrier to come to a decision on the claim.  Making sure our project managers understand claim definitions, claim triggers, and our obligations to the carrier is critically important to ensure coverage will be there when it is needed.

With our Engineering, Design and Environmental clients, we try to schedule regular meetings with project leaders, going over hypotheticals and helping them to better discern what stage a problem has evolved to?  I strongly recommend you schedule these sessions now.