An insured has coverage for third-party property damage, but insists they are not responsible for a claimant’s allegations.
Q: Can the insured refuse to submit the claim to their carrier and advise the claimant to file with their own carrier or pursue legal action? Do they have the right to not file a claim?
Response 1: Yes, they have the right to deny reporting, but they forfeit coverage if a claim follows. The policy has a condition requiring "prompt notification of a claim" and "cooperation" with the insurer.
Response 2: There are actually two situations here:
- If the insured has a claim and doesn't report it, that's their choice, but they have to deal with the consequences—including potential denial of coverage.
- If the insured tells the agent, the agent has a duty to report it to the carrier.
Response 3: Is the insured willing to be responsible for any third-party damages when the carrier denies a subsequent claim for “failure to report” under the terms of the policy?
As an agent for the company, you have separate duties to inform the carrier regarding any information you possess related the risk. Failure to report known "...facts, circumstances or information..." related to a potential claim can lead directly to an errors & omissions lawsuit.
Response 4: A better question might be, does an agent have the right to withhold this information from the carrier? I think not.
Response 5: Yes, but that would be ignorant and foolish since it would mean violating the policy conditions. If the third party sues, the insured should not expect to receive any defense or indemnification.
In addition, as a licensed insurance agency, you might be obligated under your state’s insurance code, your agency contract or both to report all claims to the carrier. If you don't, be prepared for an E&O claim.
Response 7: You have to read the policy conditions. I assume they read similarly to most policies, which state:
General Conditions
2. Duties in the Event of Occurrence, Offense, Claim or Suit
a. You must see to it that we are notified as soon as practicable of an occurrence or offense which mayresult in a claim.
That means the insured must report all matters which may result in a claim. If they fail to do so, they’re in violation of the policy conditions, and the carrier could deny the claim should it turn into a mess in the future.
Carriers don't just hand over money to claimants. If the insured isn't legally obligated to pay for the property damage, the insurance carrier isn't going to pay the claim. The insured needs to report this to the carrier.
Response 8: Yes, the insured has the right to not turn in a claim. Of course, they’d be in violation of the policy conditions and therefore forfeit coverage or defense in the event of a claim or suit against them. Remember, the insured does not determine liability. The carrier or court does. And if you are aware of a liability situation, you are obligated as a representative of the carrier to report it.
Response 9: Of course that’s their right. But if they violate the loss reporting provisions of the policy, the insurer may use that as grounds for refusal of coverage if the matter goes south later.
Response 10: Nobody can force an insured to tell their insurance company about a third-party claim, but if they don't, they may find themselves funding their own defense and settlement. Of course, they are free to tell their insurer their thoughts regarding the claim and provide any support for their view that it’s fraudulent. So while they’re free to do or not do whatever they want, in my view, it would be very foolish not to involve their insurance coverage in this a situation.
Response 11: This isn’t your decision, nor is it the insured’s. By taking this matter into your own hands, you don’t allow the carrier to determine or offer a defense for the allegations. Submit the claim and allow the carrier to investigate. Remember: Time constraints apply to reporting of a claim.
Response 12: Almost all policies require the insured to "promptly report all losses." That does not mean "losses they want to report."
Also, if the agency is aware of a loss like this, the contract they signed with the carrier probably requires the agency to report the loss.
This question was originally submitted by an agent through the Big “I” Virtual University’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.
