Coverage written on a claims-made basis require key employees to report any incidences that qualify as or may lead to a claim.
Polling letters are an indispensable errors & omissions tool. As the name suggests, these letters poll the insured's key employees to inquire if they are aware of any incidences that qualify as or may lead to a claim. When coverage is written on a claims-made basis, situations arise that require their use.
Coverage written on a claims-made basis respond to defend, pay or indemnify only those claims made or filed during the policy period. Any claim or potential claim known to have been made or received during the policy period, but not reported during the policy period or extended reporting period, may result in severe coverage or limits restrictions or the total denial of coverage.
There are two distinct types of claims-made policies: pure claims-made, and claims-made and reported.
A pure claims-made policy responds to claims made during the policy period provided the covered act—wrongful act, error or whatever triggers coverage—occurred after the retroactive date. A claims-made and reported policy responds only if the claim is reported to the carrier in the same policy year the claim is received.
Both policy types have extended reporting period provisions, but the ERP is triggered at different points in time. In a pure claims-made policy, the basic or automatic ERP is triggered if or when the policy is canceled by the insured or the insurance carrier.
When coverage is written on a claims-made and reported basis, the ERP is triggered at the end of every policy period—because the claim must be reported in the same policy year it is received by the insured.
When liability coverage is provided by one of these claims-made policies, polling letters are necessary when any one of three events occur:
- The basic or automatic extended reporting period is triggered.
- There is a reduction in coverage.
- The retroactive date is advanced.
Triggering the Extended Reporting Period
Whether the event triggering the ERP is the cancellation or non-renewal of a pure claims-made policy or the end of the policy period in a claims-made and reported policy, the insured must be polled to inquire whether or not there are claims that require reporting to the insurance carrier. If a claim that should be filed is not filed, the insured could be penalized by severe coverage restrictions or the outright denial of coverage.
ERPs allow the insured additional time beyond the end of the policy period to submit a claim. Policy language may allow the insured up to an additional 30 or 60 days beyond the expiration of the policy period to submit the claim. A claim submitted during the ERP is treated as if it was submitted on the last day of the policy period.
Anytime an ERP-triggering event occurs, polling letters must be completed to assure all claims and potential claims are revealed. These letters should be completed no later than 10 days following the end of the relevant policy period. However, some additional time may be acceptable if the ERP is 60 days.
Reductions in Coverage and Advanced Retroactive Date
Reductions in coverage and advanced retroactive date are two changes that are closely related because the insured is losing protection that existed previously.
If the insurance carrier attaches exclusionary endorsements at renewal, the insured does not have the breadth of coverage they had previously. When the retroactive date is advanced, acts that occurred after the previous retroactive date and before the new retroactive date no longer have extended protection.
Because the insured is negatively affected by a reduction in protection, the insured needs the opportunity to file any potential claims covered under the current policy that may not be granted coverage by the renewal policy. Polling letters provide an effective method to gather this information.
Regardless which of these two events trigger the need for a polling letter, the insured should complete all polling letters no more than 10 days prior to the expiration of the current. This allows time for any newly discovered claims that may be excluded under the renewal policy to be filed with the carrier.
What Makes a Polling Letter?
When constructing polling letters, the definition of a claim as provided in the policy must be included within the polling letter.
Why? Because there is no singular definition of a claim. It may be defined in the policy as the receipt of a legal document but the definition may be as broad as a threat to sue or a demand for money. Regardless, provide the definition within the polling letter. If the policy includes potential claims or a similar term within its definitions, this should be included as part of the polling letter as well.
Who Must Complete a Polling Letter?
The larger the company, the more responses required. The C-suite won't know every possible situation that may give rise to a claim. Each person has a different area of responsibility, expertise and knowledge of events.
|Type of Organization||Who Should Complete the Polling Letter?|
|Corporation||All officers and directors at minimum|
|LLC||All members and managers at minimum|
|Partnership (LLP, GP or Other)||All partners at minimum|
|Sole Proprietorship||The sole proprietor and any key managers at minimum|
Big “I' members can take a look at two sample polling letters included at the bottom of this article. The first is a blank template an agency can use to construct a polling letter. The second is a mock sample of a completed polling letter.
Big “I' members can use these samples to develop polling letters for any client-provided coverage on a claims-made form. Claims-made forms are most often used to provide directors & officers, employment practices liability insurance, E&O, professional liability and sometimes even general liability for unique insureds.
Add polling letters to your renewal routine where a claims-made policy is involved. Polling letters are especially important when coverage is written on a claims-made and reported form because they need to be completed at every renewal.
Chris Boggs is Big “I" executive director of risk management and education.