RISKVUE ARCHIVE | FEATURE STORIES

The Notice Requirement and Liability Claims

By Marian Rainville, Lindquist & Vennum, P.L.L.P.

Liability policyholders must comply with certain policy provisions in order to protect their rights in the policy. One of these provisions is the notice requirement. Policies often require policyholders to inform their insurer when they become aware of a claim, suit or an occurrence (an event that could lead to a claim or suit) potentially covered under the policy. Courts take notice provisions seriously, and so should policyholders.

Policyholders should be familiar with the notice requirements in their policy, and comply with its provisions. Failure to properly notify might provide a basis for the insurer to deny the defense and indemnity of a claim that would otherwise be covered under the policy. This could cost the policyholder millions of dollars.

Notice Requirement Purpose

According to insurers, the purpose of the notice requirement is to allow insurers the opportunity to respond to a claim, prepare a defense, and protect insurers from fraud. Insurers believe if they are notified promptly they are better able to investigate an occurrence or claim while the “trail is hot” and before witnesses’ memories have faded.

Many states enforce notice conditions only when insurers show that late notice actually prejudiced them. In such states, insurers would have to show that the untimely notice adversely affected their rights. However, some states strictly enforce notice conditions, and prejudice to insurers need not be shown. Regardless of whether a state requires insurers to prove prejudice, policyholders should comply with notice provisions to avoid claims by insurers that policyholders waived their rights under the policy.

Policy Language

The notice provisions of an insurance policy typically require notice of an occurrence, claim or suit be given within a particular time period. Such time periods vary among policies and are rarely specific, for example, “as soon as is practicable,” “immediately,” “promptly,” or “within a reasonable time.”

Regardless of the specific term used in a policy, most courts use a “reasonableness” standard to determine whether the notice requirement has been met. The court will examine the facts and circumstances of each case to determine if the policyholder did what a reasonable policyholder would have done in a similar instance. Thus, if a reasonable person would believe a claim could be made under the policy, the policyholder should notify its insurer.

Some courts will not excuse untimely notice based on lack of knowledge of the policy itself or its coverage, or the policyholder's belief that liability will not be imposed, or a claim will not arise. It goes without saying that policyholders should locate copies of all their current and historical policies, including policies in which they are an “additional insured,” and become familiar with their policies’ coverage and notice requirements.

Notice Mechanics

Policyholders should create internal procedures on how to give notice. It is a good idea to have one person (or a small group of people) responsible to handle this process. The responsible party or parties should receive all information related to possible occurrences, suits or claims in order to determine whether notice should be given, and to identify which policies and insurers might arguably have coverage. This is particularly important with occurrence-based policies in which several insurance companies and policies might provide coverage for one claim or suit.

Once all information is gathered, the following steps should be followed to ensure proper notification:

• Determine exactly who and where the notice must be given. If the insurer has moved from the address listed in the policy, the notice should be sent to both the old and new addresses.
• Notify the insurer directly and in writing. Some courts have held notice to be insufficient when policyholders notified only their insurance sales agent or broker — be sure to notify the insurance company itself. Ideally, the notice letter should refer to the policy or policies, track policy language, and invite the insurer to take some action with respect to the occurrence, claim or suit at issue.
• Send notice letters via certified mail or Federal Express, or any other way that provides a receipt. The policyholder should always follow up with the insurer to verify that the notification was received.
• Retain copies of all letters and other correspondence to and from insurance companies. This includes correspondence to and from the policyholder's broker and sales agent. The policyholder might need this written documentation in the event of a coverage dispute with the insurer.

Conclusion

Many policyholders might be concerned that providing notice of an occurrence or claim could result in higher premiums or cancellation of their policy. Policyholders should guard against potentially forfeiting their right to receive the benefits of their insurance policies by failing to provide timely notice. Generally speaking, in cases of doubt it is best to give notice.  

ABOUT THE AUTHOR

Marian Rainville is a member of Lindquist & Vennum's Minneapolis Litigation and Insurance Coverage Practice Groups. She can be reached at 612-371-3941 or e-mail mrainville@lindquist.com.

This article is only a general summary for informational purposes and does not constitute legal advice. Consult a qualified and experienced insurance advisor for your specific situation or particular questions.

riskVue | The webzine for risk management professionals
September 2004