Joined: 06/17/2014 09:32 PM EDT
Location: Carmel, IN
Professional Liability Question of the Day: What happens with existing claims?
If you’ve been in home inspection long enough (and performed enough inspections) you know that it is only a matter of time before you run into a situation where a client engages a lawyer to come after you and your company. In fact, just this morning I was reviewing a demand letter against one of the most diligent inspectors I’ve ever met for $400,000.00 and I couldn’t find a single wrongdoing on the part of the inspector.
Home inspectors very often get brought in on issues that don’t have much to do with their responsibilities. When we exclude all of the claims that are covered by warranties provided by the leading home inspection companies, probably 80%+ of all demand letters remaining are the result of fraudulent contractors and another 18%+ the result of a seller’s disclosure issue. Around 100% of them are unavoidable and most will require some sort of expense to get rid of.
What is a “Claim” in Home Inspection Errors & Omissions/General Liability Policies?
Category I: The Absolute Claim.
A Demand Letter, from a lawyer, is the equivalent of “being noticed” in the world of Professional Liability Insurance. The only thing more definitive so far as a “claim” goes is an actual filed complaint (lawsuit). If you have an active back and forth with opposing legal counsel or an active lawsuit, that’s an active claim and your current Insurer, assuming aware of either and properly noticed, would be responsible to see the claim through regardless of whether you are currently insured or switching carriers (so long as they were your carrier on the date you received the communication and remained such through the notification period). The issue behind the demand letter and/or litigation could extend for many years and the insurer would still be responsible.
Category II: The Certain (more than likely) Claim.
Sometimes clients lie about their intent to sue and/or engage an attorney, but if a client has clearly stated their intention to do either of these things and your insurer is on notice, you have an active claim...sort of. It could be that such a threat never becomes anything. It could be that such a threat becomes a demand letter that is responded to and goes silent for some significant period of time, it could be that the threat turns into real litigation.
Either way, if you as the insured noticed your insurer over such an issue and did so while insured, they have an obligation to defend within a reasonable period of time. While some would say such a period is a year or less, few would suggest it is 2 years or more. This is a subjective time period and open to interpretation, but the requirement to cover under a claims made policy is not.
Category III: The Not-So Certain Claim (Reported)
Whether “reported” officially as notice of a potential claim or indirectly reported as part of a “pre-claims” scenario, a reported event with no specific legal threat, demand letter, or filed litigation can still be considered a “known claim” that the insurer at the time of notice becomes responsible for over a reasonable period of time for the issue to become a bona fide claim issue. This period would generally be considered reasonable if within a year although that time could be extended should there be interaction from the insurer or one of their administrators as part of a pre-claims operation.
Category IV: Non-Claims (Unreported or Unfiled)
Did you talk to your insurance agent/administrator about an unhappy client? That’s not necessarily a claim notification at all, especially if the insurer would have no reason while operating in good faith to believe any claim might arise from the situation. If the situation hasn’t moved beyond “customer service situation” until after you made the switch from one insurer to another (or cancelled), then your prior insurer has no obligation to the issue.
What if I have a claim situation that does not fall into one of the above categories?
In that unlikely circumstance, find the most similar category. The outcome is likely the same.
Are there any reasons my prior insurer could deny coverage?
Yes! If you missed a payment, failed to notify when you were served with papers, misrepresented your company in the application/renewal process, or if the issue falls outside of coverage you should not expect the insurer to assist on the matter.
Will my claim be handled differently if I tell my current insurer of the intent to move my business elsewhere?
It may seem that way at times, but the coverage terms did not change when you cancelled your policy and the obligations on the insurer remain the same.
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