Thou Shalt Timely Report All Claims

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A recent decision before the Nevada Supreme Court highlights the importance of timely reporting all claims.  The issue: is a carrier’s “constructive notice” of a potential claim sufficient to trigger coverage?  Lesson: all professionals must have a firm grasp of the reporting requirements under their professional malpractice policy or risk denial of coverage.  The Nevada Supreme Court’s decision in Physicians Insurance Co. v. Williams raises the all-important question: must all professionals, even pill-poppers and cocaine abusers, provide their insurance representative with timely notice of a claim?  This decision also clarifies that the reporting requirement is not excused even if the insurer had independently learned of a potential claim.

The details of the underlying dispute, although fantastic, are not critical to the point of the story.  A detailed summary of the litigation and ultimate opinion may be found here. In short, however, a drug-abusing and pill-popping dentist utilized “street cocaine” as his preferred anesthetic when performing a root canal on Glenn Williams.  When Williams failed a drug test and was terminated from his employment, he sued the dentist.  The dentist did not report the claim to his professional liability insurance carrier, Physicians Insurance Company of Wisconsin (“PIC”).  Williams recovered a default judgment of nearly $500,000 against the dentist but more litigation ensued once Williams made demand directly to PIC.

The lower court ruled that PIC had constructive notice of the claims against the dentist, which triggered coverage, because the dentist’s demise was reported by the local media. However, the Nevada Supreme Court reversed and held that the policy sets out specific notice requirements, which were not met, and therefore coverage was denied.

Granted, the specific facts of this case are unique but serve as an important reminder regarding sufficient “notice” of a claim. Often this question is decided based on an analysis of two factors. First, did the professional provide timely notice of a claim within the policy period? Second, and if not, did the failure to provide actual notice result in prejudice to the carrier?  The answer will depend on the law of the jurisdiction.

The lesson for professionals is clear: timely notify your insurance representative of any potential, and certainly actual, claim.  The result may be a reduced deductible for pre-claim reporting.  Another result may be the early consultation with counsel.  Moreover, and all importantly, timely reporting results in less chance of the carrier denying coverage.