Brokers must ensure timely claim notification: Clyde & Co.

Some policies allow, but don’t mandate, policyholders to notify any potential claims.

Clyde & Co.’s latest article stresses the critical importance of notifying insurers promptly in claims-made policies, a common structure for professional service firms and financial institutions. 

Under these policies, coverage is triggered by claims or potential claims reported within the policy period, regardless of when the events occurred.

Policies frequently require claims to be reported “as soon as possible,” “as soon as reasonably practicable,” or within a set time period, typically in days. 

Generally, a “claim” is easy to identify—typically a demand or assertion of rights or damages—prompting the need for immediate notification as per policy terms. 

However, notifying potential claims or “circumstances” can be less clear, as policies may not define “circumstance” explicitly. 

Some policies allow, but don’t mandate, policyholders to notify any potential claims, allowing coverage if the situation escalates to a formal claim after the policy period. 

Others mandate notification of any circumstances that could evolve into a claim, aligning with the policyholder’s duty of fair presentation under the Insurance Act 2015.

Failure to notify a claim or circumstance correctly can lead insurers to deny coverage, even if there’s no direct harm to the insurer. If notification is delayed and causes additional costs, insurers may seek reimbursement from the policyholder for these costs, which can be substantial.

To ensure coverage, policyholders and brokers should understand the specific terms of each policy and have risk management practices in place to support timely notification.