This is the final post in a 5-part series authored by Fred Fisher. Check out the previous posts in this series here: Part 1 | Part 2 | Part 3 | Part 4.
Three Keys to Picking the Best ‘Claims Made’ Form
Over the last week the “claims made” policy has been dissected, revealing its inner workings. But before moving on to the keys for choosing the best “claims made” policy form, the heart of the “claims made” policy must be explored: the definition of a “claim.”
The Definition of “Claim” Scrambles Everything
Defining a “claim” in the context of a “claims made” policy is the first issue when analyzing coverage. Many Appellate courts have ruled that a “claim” is “a demand for money or services.” Sounds simple enough; yet isn’t the filing of a lawsuit, even if un-served, a “demand for money?”
What if suit is filed in one policy term where the definition of claim is “a written demand” yet served after renewal on a policy written by another insurer whose policy defines “claim” as “a written demand received by the insured,” or” a lawsuit served on the insured?” Under these definitions, two insurers could have coverage for the same “claim,” which is not supposed to happen with “claims made” forms.
More complicated is the scenario where an insured moves coverage from an insurer whose definition of “claim” is “a written demand received by the insured,” to an insurer that applies a Prior and Pending Litigation exclusion using the policy’s inception date. If suit is filed during the expiring policy term but served after the inception of the new policy, the claim will be denied by both – even if reported to the prior insurer within the 30 or 60 day reporting extension (if applicable). The suit does not meet the extended reporting period requirement as it was not “received by the insured” during the policy term. The new insurer will likely deny liability because the litigation commenced (the suit was filed) prior to inception. Thus a gap in coverage is created, which isn’t supposed to happen when the insured has continuous “claims made” coverage.
Playing the “Claim Game”
Agents and brokers who do not work with “claims made” coverages on a regular basis now should have a much deeper understanding of the intricacies and differences each carrier/policy form offers. Successfully navigating through “claims made” policies requires specific attention to detail, particularly to the policy form definitions.
As has been presented in this series, one “claims made” policy is not just as good as another; and if the insured has been covered by an inferior form in the past, changing to a superior form could create coverage gaps. Knowing how the find the potential gaps makes good agents better agents.
Formulate claims scenarios when/if coverage is being moved to another carrier and policy form. Several may need to be created and run – comparing the scenario to the coverage form wording – to assure that there are no gaps or what gaps there might be.
What to Look for in a “Claims Made” Policy
Placing a “claims made” policy requires the agent to look for certain policy characteristics. Following are a few hallmarks of the “best” “claims made” coverage forms:
- Try to use a company that uses a “claims made” form rather than a “claims made and reported” form. Unfortunately this will prove the most difficult;
- If the only form available is a “claims made and reporting” form, look for one that automatically provides the insured 30 or 60 unrestricted additional days after expiration to report a claim first made prior to expiration. Make sure the definition of “claim” does not require “receipt by the insured;” and/or
- Use a form that does not use the inception date as the prior and pending litigation or continuity date when there is prior coverage in force. Or use one that excludes “known litigation.prior to inception” only.
Use of these simple rules will ensure better coverage for clients and fewer chances for errors and omissions claims for the agent. n addition, by asking for endorsements to clean up the language, fewer underwriters will be heard to say, “You’re the only one asking.”
This ends the five-part series on “claims made” coverage forms. Hopefully this has increased awareness of the pitfalls and gaps potentially present in the use of these forms.
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