Navigating pre-claim assistance in professional liability policies

Most professional liability policies allow insureds to report circumstances that could reasonably develop into an insurance claim. This offers three main benefits:

• The insurer can recommend steps the insured can take to help prevent a claim from materializing.
• Coverage is activated promptly, ensuring that if a claim arises, it will be covered under the policy that was active when the notice of circumstance was provided.

Notice of circumstance and the construction industry

Reporting situations that are likely to develop into claims can be particularly helpful in the construction industry, where disputes often escalate into professional liability claims. For example, contractors submit change orders asserting that errors or omissions in project plans and specifications prevented them from accurately estimating their bids.

Other examples include when an insured receives a subpoena to provide documents or testimony in a project-related dispute where the insured isn’t a party, or there’s a job site accident resulting in injuries. We view such situations as loss-prevention opportunities. Either could be described as a “circumstance” reasonably likely to result in a claim against the insured.

How to report a notice of circumstance

The conditions section of a professional liability policy outlines the procedure for reporting a notice of circumstance. The specific language may vary among insurers, but generally, if you become aware of circumstances during the current policy period that could reasonably lead to a claim, you can notify the insurer and request pre-claim assistance.

Notice should include:

• A description of the specific wrongful act or circumstance, including relevant dates
• The date and circumstances under which you first became aware of the specific wrongful act or circumstance
• The names of all potential claimants
• The reason(s) for anticipating a claim

If the notice is accepted, the insurer’s representatives will advise the insured on the best course of action. These representatives may include an adjuster employed by the insurance company, a lawyer or an expert in the professional standard of care. In all cases, the insurance company will cover loss- prevention expenses and won’t them to the policyholder. It’s important to note that the insurer must pre-approve any expenses.

A notice of circumstance will be considered a "loss prevention" matter until a demand for money services is made to the insured. At that point, the matter becomes a claim and the deductible applies to any expenses and indemnity payments made after that date.

A claims-made basis

Professional liability policies operate on a claims-made basis. This means they cover claims made and reported during the policy period as long as the insured wasn’t aware of circumstances likely to lead to that claim when the policy began. Timely reporting of circumstances enables the policyholder to meet the policy’s terms and activate the coverage. Even if a claim is filed after the policy expires, coverage will still apply for the policy period during which you first reported the circumstance.

Issues to consider when reporting a notice of circumstance include:

• Secure the insurer’s consent before incurring any expenses. Insurers won’t pay or reimburse expenses incurred without its consent. Expenses will be incurred at the discretion of the insurer.
• A notice of circumstance must be reported during the policy period in effect when the circumstance is discovered.
• All known issues associated with the project should be identified in the notice of circumstance report. If a claim is made after the policy expiration, all related claims should be considered a single matter that triggers one policy and one deductible.
• There must be a reasonable basis to anticipate a claim. Insurers won’t accept a laundry list of projects, especially if the insured is changing insurance carriers.