Demystifying Insurance – What does “claims made”​ mean?

SarahRobinson

22/02/2017

Insurance and tranquillity are not often interchangeable terms.

I selected the above image to try and bring some tranquillity first, then understanding to an often-asked question in the insurance sector.

The term is often found in most professional indemnity (PI), errors and omissions (E & O), directors’ and officers’ liability (D & O) and employment practices liability (EPL) policies, to name a few, because the policies are written on this basis.

A policy which provides such cover is triggered (i.e. activated), when a claim (i.e. event – such as a legal proceeding or demand) is made against the insured (as defined in the policy) and during the period of insurance (say 1 July 2016, 4pm to 30 June 2017, 4pm).

This is regardless of when the alleged wrongful act is said to have taken place.

There are exceptions to this, such as when a retroactive date is applicable in the policy. Continuous cover is also a factor to consider as well. These are subjects in themselves and hence, individual policy and circumstances should always be considered on a case-by-case basis.

What is of importance to grasp is, a policy written on a claims made basis, will only cover a claim made against the insured, if it is:

  1. reported to the insurer during the period of insurance (i.e. 4pm, 1 July 2016 to 30 June 2017, 4pm); or,
  2. arises from a circumstance (and/or a possible circumstance) which the insured becomes aware of during the period of insurance, which might reasonably give rise to a claim in the future. If this occurs, then this circumstance should be reported to the insurer during the applicable period of insurance.

It is vitally important that insurers are advised of any claim (i.e. an actual demand or proceeding), or circumstance (i.e. something which may give rise to an actual demand or proceeding, possibly in a subsequent insurance period), which the insured is aware of; and, prior to the expiration of the policy of insurance.

Why?

Because often claims made policies have provisions in place for “prior known facts and circumstances” as an exclusion for cover. The existence of this is a topic itself; and, is governed by the facts of the matter, the knowledge of the insured, the policy itself and where applicable, the provisions of the Insurance Contracts Act 1984 (Cth).

A practical step to have in place for a business is for a nominated person to conduct an enquiry to all relevant parties in the business to determine if a circumstance need be notified to an insurer, or a claim. This should be done prior to the expiration of each policy period; however, a prudent step would be quarterly reminders to relevant parties to do so.

It is important to have in place adequate measures for all known claims and circumstances that may give rise to an alleged claim to be identified and reported to insurers prior to the policy period expiring.

Failure to adopt this practice for an individual or business with such a policy may result in a claim being declined.

 

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Sarah Robinson @SR Insurance Consulting, is the Founder and Principal. SR Insurance Consulting is a business created to provide consulting services to businesses and small to medium sized brokers. Prior to starting her own business, Sarah was Assistant Vice President Claims, at a global leader in insurance and risk advisory solutions. She has served in a variety of insurance roles over the past 18 years, working for law firms, as an in-house lawyer and as a claims management specialist.

SR Insurance Consulting blog is not intended to act as advice. Should you require advice, please contact SR Insurance Consulting directly. The blog is not designed to be an exhaustive cover of each topic discussed. Each matter should be considered on a case-by-case basis.

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