According to our friends at CPA Gold, LINK, from a purely risk management perspective, bringing your insurer into the claims process is extremely prudent and can save you a lot of money. Here are the reasons you should contact your insurer or agent sooner, rather than later: involvement of counsel, denial of coverage, deductible concerns and risk management. Each of these factors, and others, were addressed by CPA Gold and are absolutely worth considering.
Reporting a potential claim enables your malpractice insurer to work on resolution, which will get you back to business as usual. The insurer may determine that it is appropriate to retain legal counsel to assist with a pre-claim situation. Other services may include preparing a tax penalty abatement request, drafting talking points for communicating the facts of a situation with the client, and providing subpoena and other consulting services if the need arises.
Taking certain actions without consultation with your insurer can result in a coverage denial. Examples include admitting liability, assuming damages, voluntarily making any payments, or incurring claims expenses. Such actions will likely violate policy conditions, which may result in a denial of coverage. Policyholders should not take action without first receiving guidance from their agent or insurance company.
Early reporting may trigger the deductible reduction features. Your policy may offer a feature which reduces the deductible if you report claims early or settle claims within a certain period of time (usually 12 months). This could reduce your deductible from 25 to 50 percent.
Contacting your insurer or agent is a good way to avoid costly mistakes and problems. For example, misstatements on insurance applications may result in a higher premium or even the rescission of a policy based on wrong information. Call your underwriter or agent with questions about the application and the information requested. A phone call is an easy way to correct errors before they occur.
Taking advantage of your insurer’s risk management tools will help you avoid disputes and claims. Client screening checklists, engagement letter templates and review services, specialized hotline consultations, and documentation techniques are all effective, and the more tools and resources a program provides, the better.
Early reporting helps assure coverage for the potential claim. Firms that go along with clients in attempting to a handle problem internally without reporting it to the insurer are sometimes surprised to find out later that the problem is much larger than it appeared to be. It is always a good idea to put your insurer on notice of a problem that could become a covered claim and could save the firm money in the form of reduced deductible obligations.
It’s sometimes hard to recognize the signs of a potential claim. Busy schedules and tough workloads can distract your attention. But if the damages are significant and there is no professional liability insurance coverage due to a denial for inadequate or late reporting, it can be catastrophic.
Reprint: CPA Gold. By Rickard Jorgensen, FCII, ARM, ACIArb.