Conversely, claims involving a third party where bodily injuries are caused should definitely be reported to the carrier. The injuries could be worse than initially thought and if there is a delay in advising the carrier of the claim, they may take a tougher position. Certainly advising them of the claim will allow them time to do their review of the matter.

Thus if the matter is a first party, there is probably less of a downside if the customer ultimately chooses not to report the claim.

If the customer leaves the decision to you, I strongly contend that you have an obligation to notify the carrier and that failure to do so runs the risk of negligence against your agency.

Another “claims” issue involves other policies that the customer has that might provide some coverage for the specific loss. A common issue deals with a bodily injury claim when the customer has an umbrella. You reported the claim to the GL or auto carrier. Did you put the umbrella carrier on notice? While you may not believe the claim has the potential to penetrate the underlying coverage and go into the umbrella layer, these types of scenarios occur. The concern would be that if the claim adversely develops and penetrates the umbrella layer, the umbrella carrier may take a tough position if they were not advised of the claim early on. In other words, they will contend that they did not have the opportunity to conduct due diligence and investigate the matter.

So when a claim occurs, be sure to review the entire file to determine any additional policies where coverage may apply; then put those carriers on notice.

Surprisingly, there have been a number of E&O claims as a result of an agency employee denying a customer claim without sending it to the carrier because the agency employee was convinced that the claim was not covered. Unfortunately, they were wrong and if the claim would have been submitted, coverage would have responded. Rule of thumb: Even if the agency person is positive that the claim is not covered, he should still send it to the carrier for them to make this important decision. Agents should not be denying claims.

Last is the issue of improper or incorrect coverage interpretations. One recent E&O claim involved the customer contacting the agency to notify them of a potential claim under a professional liability policy. The agency advised them that their issue did not meet the definition of a claim and thus there was no need to report the matter. The matter definitely should have been reported and because of the nature of the claims made policy (it was a claims made and reported policy), when the claim was reported, the carrier denied it because it was reported after the coverage had expired.

Claims handling is obviously an extremely important part of the insurance industry. Handling this function with focus, precision and professionalism should keep this from causing a legal headache for your agency.