Professional liability insurance policy is provided on a claims-made basis, and not the more common occurrence basis. One significant difference between claims-made and occurrence policies is the timing required when making the claim. Claims-made insurance requires that a policy be in effect at the time the claim is made regardless of when the act, error or omission occurred. (Of course, this assumes the error in question occurred after your loss inclusion date or retroactive date for your current claims-made policy.) For occurrence based insurance to cover a loss, the act causing the harm had to occur during the policy period. In claims-made insurance, it is the report to the carrier that triggers the carrier’s duty to indemnify―not the act, error or omission that gave rise to the claim or potential claim. When the act, error or omission occurred is just one of the facts we consider. It is not the ultimate determiner of coverage.
When an Insured becomes aware of facts or circumstances which could reasonably be expected to give rise to a claim the duty to report is triggered. In ALPS’ policy of insurance, this trigger is an objective test. It is irrelevant whether the attorney subjectively believes the claim to be frivolous. If objectively the facts and circumstances could give rise to a claim, it must be reported. The operative language in your policy states you must give ALPS a written report when you become aware of facts or circumstances that happened “before the end of the policy period and which could reasonably be expected to be the basis of a claim or suit.” As attorneys, you are trained to spot issues from fact patterns. Your reporting requirements are akin to the issue spotting you do for your clients on a day-to-day basis which is nothing more than the issue spotting that you had to do in law school or on your bar exam. It is not just what does become a claim but also what could reasonably lead to a claim. At ALPS, we have a twenty-four hour a day claim’s hotline you can call if you have any doubt whether you should be reporting a set of facts and circumstances. Call us at (800) 367-2577.
As mentioned above, failing to report can nullify coverage and in certain circumstances may give a carrier the right to rescind a policy altogether. A full explanation of how and why in claims-made insurance notice is important is too complex and factually driven to be covered here. Suffice it to say, all carriers take notice issues very seriously.
If you are covered by a claims-made malpractice insurance policy, reporting a claim or a potential claim is one of your most important obligations, if not THE most important obligation, that you have under your policy. Why is it so important? Simply put, if you fail to timely report a claim or a potential claim, you jeopardize your coverage for that claim and risk rescission of your policy.