By John Armstrong
Whether you’re an insurance adjuster or a self-insured business, or have a high insurance deductible, your likely to have a claim involving your business. This blog covers a sub-category. Namely, the “pre-claim” claim. It’s hard to define a “pre-claim.” Some malpractice policies describe it as the point when the professional has notice of a situation where a claim is likely to develop in the future. Real life examples I’ve seen are claims against a publicly traded corporation regarding financial errors/mismanagement that should have been caught by the publicly traded firm’s accountants. The SEC or class action may be against the corporation’s Board of Directors at first, but it may be just a matter of time before others are sued. Another situation is where a business is subpoenaed to provide information in a lawsuit regarding work or services the business provided one of the parties in the dispute.
In both of these situations, there generally is no insurance coverage because, thus far, there is no “claim” as that term is ordinary defined in standard liability insurance policies. But here’s the dilemma; do nothing, and by the time a real “claim” is made against the insured business, there may be little hope of fighting liability or damages—especially if depositions have been taken. Some insurers will agree to treat such situations as a “modified” claim where the insured pays a modest deductible because a defense for the deposition and subpoena and others will just agree to hire pay hire the insured’s attorney at panel counsel rates to protect the insured. Certainly, in the above scenarios the insurer is not legally obligated to start funding a defense. However, the big picture is too avoid being penny wise and dollar foolish; that is, the few thousand dollars spent today may prevent a “claim” from ever being made against the insured, and if there is one, the valuable of the claim is likely to be much less.
Another thing businesses and insurers can benefit from is having the insurance company offer seminars to insured businesses on good risk prevention practices. Some insurers may even offer discounts on premiums to insureds who participate in such programs. Many insureds are unaware that these programs exist. For insurers offering Employment Practices Liability (a.k.a. “EPL” policies), such programs are invaluable to claim prevention.
Even if an insurance company doesn’t offer a risk prevention program, often the law firms they use will, or even a business’s existing lawyers, if asked. Law firms will generally treat this kind of a seminar as a marketing event instead of billable event. Of course, it always a good idea to let the law firm know as much information about the business so that a well tailored risk prevention seminar can be given.
In sum, early claim detection and prevention saves insurers and business thousands if not ten thousands of dollars. If you’re a business and you think that a claim might be pursued against your business, that’s a great time to start a dialogue with your insurer and with your attorneys. Even before then, taking advantage of educational opportunities will let you know what to do and how to do it to prevent potential claims, or to at least mitigate the costs when a claim is made.