The Texas Supreme Court recently ruled that an insurer cannot deny coverage because notice of a claim is not provided “as soon as practicable” if the late notice does not prejudice the insurer. This is a reversal of an earlier ruling made by the Texas 5th district appellate court. While this ruling may seem advantageous for insureds, late reporting of claims is still problematic. Here’s a basic overview of how claims are analyzed:
There are 5 key areas that a claims handler will explore upon receiving a claim. They include who is insured, scope of the insuring agreement, coverage triggers and policy exclusions. The fifth area falls into the category of other considerations. If, when analyzing these 5 categories, the claims handler finds that the conditions are not met, then the insurer will conclude coverage does not fully apply or the claim may even be disclaimed.
Who is insured
To evaluate this element, the defendants are compared against the insured entities on the policy. Considerations include whether or not the defendant is an employee of a named insured, what subsidiaries are covered and if there’s any type of omnibus wording on the list of covered entities.
Scope of insuring agreement
A named peril policy will list the types of exposures covered, so from the list of perils covered, it can be determined if the peril that is the subject of the claim is included within the coverage agreement. If it is an all risks policy, it will be necessary to look the policy’s exclusion section to determine if coverage applies.
This evaluation turns on whether the policy is written on an occurrence, claims-made or claims-made and reported basis. Usually it is only possible for one claims-made type policy for a given risk type to apply to any given claim but for occurrence policies, it is possible that an event that triggered the claim could affect more than one policy period.
Beyond checking the insuring agreement, the exclusions will also be examined. Generally, the exclusions are interpreted narrowly by courts and any interpretation of an exclusion that is expansive or unclear may not be satisfactory to the courts. The exclusion should be examined in its entirety, including any introductory language that predicates the exclusion section of the policy as that language may impact how the defense and indemnity function.
Additional considerations include coverage territory, definitions, treatment of defense costs, punitive damages and the timing of the reporting of a claim.
For more information about claim reporting, visit the defense and settlement section of our blog.