August 2, 2023
If you or your business has a potential claim under your insurance policy, you are required to notify your insurer as soon as possible.
This is seldom a problem for property insurance claims since you would want to notify the insurer so that they can investigate and write you a cheque.
Where the problem typically arises are claims under liability insurance policies made by other persons alleging that the other person suffered a loss for which you are responsible.
Typically, a liability insurance policy will require notice to your insurer or as soon as you reasonably are aware of circumstances or facts which may give rise to a claim. From the insurer’s perspective, this is necessary so that they can make a timely investigation of the circumstances. From your perspective, you may be either unaware of the claim, in denial, or concerned about your claims record.
If your insurer denies coverage and you respond that you were unaware of the claim, a court will conduct a factual inquiry to determine what you knew. The next step is the potential trap. It does not matter whether you were unaware that those facts give rise to a potential claim.
This will also come back to bite you if you are in denial about the claim because the courts will apply the “reasonable person” standard. This means that the question that the court asks itself is not “Did you think there was a potential claim?” but “would a reasonable person have thought there was a potential claim?”
We have written before about the uncertainty created by “reasonableness” standards in administrative law. Insurance is not that different when it comes to reasonableness.
Any time the courts start to talk about “reasonable”, the standard becomes wobbly. “Wobbly” because it is a moving target- what you think is reasonable might differ from what a court thinks is reasonable. What matters is what the court thinks is reasonable. But how do you guess that?
Our usual advice is that if someone suffers a loss, assume they will make a claim and report it. Another way we sometimes express it is, “If you are losing sleep over it, report it.”
That runs into the third scenario dealing with a claims record.
Some insurers, or some types of coverage, will treat a report of a potential claim as if it was an actual claim. They may charge their cost of investigation against your deductible and possibly raise future premiums. If you have too many claims, they may even refuse to continue insuring you.
Fortunately, most situations are not that drastic. Because insurers want to be able to investigate, most companies will offer some leeway and not charge a report of a potential claim against you unless it becomes an actual claim.
Because this differs between companies and coverages, it is essential that you understand what your policy states. The fine print of your policy is important. If you have questions or concerns, the time to ask your broker or insurer is when you buy the policy or later as soon as the question is on your mind. Do not wait until you are confronted by a potential claim. Knowledge is power.
WHAT WEILERS LLP CAN DO FOR YOU
Weilers LLP has existed for over 75 years. During that time, we have represented insurers, insureds, and claimants against insureds.
Our counsel, Brian Babcock, has taught insurance law at the Bora Laskin Faculty of Law at Lakehead University.
At one time, the bulk of our insurance-related work was for insurance companies. Now, we mainly advise and act for insureds, but we bring our knowledge of how insurers think and act to our work for you.
We can advise you if you have a question about your policy, including about your duty to report. If you find yourself in a dispute with your insurer, we can represent you in negotiations or a lawsuit. If you are sued, and your insurer denies coverage, we can act both to defend the claim and, if we agree that it is worthwhile, to seek coverage.
If you need advice about insurance law, Weilers LLP may be the right lawyers for you.