File Insurance Claims

When an organization is sued, you should immediately file a claim with your insurance carrier.  Whether it is a claim for workers’ compensation, general liability, or directors’ and officers’ liability, report it as soon as possible to the respective carrier.

All insurance programs require notification within a certain timeframe if the claim is to be covered by your carrier.  In signing an insurance contract, you make promises to the carrier just as the carrier makes promises to you.  If you report the claim too late, the insurance company may deny it.  You must follow the rules in order for the claim to be considered.  If you’re uncertain about a required timeframe for notification, check your policy or contact your carrier or broker for clarification.

There are provisions in any policy that will allow a claim to be denied.  Carefully read the sections dealing with disclaimers and the reservations of rights.  These areas outline the things that may cause a claim to be disallowed.  For example, if your policy states, “notice hereunder shall be given in writing,” there is an obligation to report it in writing.  Insurance companies are very careful of the wording they use.  Follow their instructions.

In fact, some insurance experts suggest that it’s a good idea to notify your broker or insurance carrier as soon as you become aware of any circumstances that might give rise to a claim.  The first step would be to consult with your broker (if your organization has one) or someone with insurance knowledge or experience.  For example, if an employee or volunteer trips over an extension cord and injures him or herself, file a report with your workers’ compensation carrier.  If a visitor in your space walks into a glass wall and injures himself, file with your general liability carrier.  If a former employee threatens to sue for wrongful termination, call your D&O carrier.

However, the flip side of this may be a legitimate concern about rate increases if you notify your carrier every time there is an incident — especially in cases where no claim is eventually filed.  If you file notice of every potential claim, won’t your claims history get worse and your rates go up?  If this were to happen, you may be able to make the case to your carrier that it is not justified.  When your policy comes up for renewal, you can ask for a claims check by the insurance carrier.  If no defense costs were incurred, how can they raise the policy cost?  Let your insurance company make the evaluation of the claim. 

Just because you think a claim has no merit, don’t assume that it will go away.  Those are the ones that will often come back to haunt you. 

Reporting every incident is a matter of risk each organization has to decide based on its experience and circumstances.  You need to weigh the benefits and the risks. 

Your employee handbook should include internal reporting procedures in the event of an incident or a claim.  Coordinate between your HR, counsel and risk management advisors, so that everyone knows the protocol when a potential problem arises.

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The discounted Directors’ & Officers’ Liability Insurance offered to NPCC members is administered by Frank Crystal Financial Services.  For more information, call Christen Petraitis at 212-504-1841. 

To read more about D&O insurance, go to NPCC’s article at www.npccny.org/info/oi2.htm.

This article originally appeared in the July 2006 issue of NPCC's monthly newsletter, New York Nonprofits. www.npccny.org