Claims Prior Knowledge/Notice is a leading cause for malpractice claims denials. This happens when incorrectly completing the attorney malpractice renewal application claims questions or a different insurer’s new business application. Whether intentional or by accident, misinformation on a malpractice application causes claims denials. Delaying prompt notice by ignoring a written notice or other claim warning signs can also get a claim denied.
Failing to report potential claims can cause problems:
1. Failure disclosing a potential claim on a new business or renewal application gives a malpractice insurer the right to rescind the policy if the misrepresentation is material. This means that coverage never existed.
2. Most claims-made policies do not cover any act, error, or omission you could have reasonably foreseen if not reported on a timely basis. This even is true when firms continue to renew with the same insurer. Insurers may treat the malpractice applications as a warrant. A failure to report a claim or potential claim means that the firm breached its duty to the insurer and can be a basis for the claim denial even on unrelated future claims.
3. Notice of a grievance without prompt notification to your insurer opens up a potential claims denial. Your insurer may be responsible for providing a defense or covering defense cost for the grievance once put on notice.
Steps to avoid a prior notice claims denial:
1. The person completing the application polls the entire staff as to any potential or actual claims or incidents. The responsible individual should have knowledge of any ongoing claims against the firm. If the newest firm staff member completes the application remember (s)he will have no institutional knowledge of past claims or ongoing litigation. This is a problem when the firm is shopping for alternative insurance coverage. The new associate providing application information might complete a new business malpractice application without disclosing past claims. When an inexperienced staff member finds a price that is too good to be true the worst thing that can happen is the firm goes with this quote. If claim matters become known later, there is potential for insurance coverage rescission; non-renewed; and future claims denied coverage.
2. Even if you do not believe that a disciplinary matter or inquiry might result in a claim, it is important to disclose on application(s). If the non-disclosed matter later turns into a malpractice claim the original notice of the inquiry could constitute “prior knowledge.”
3. If the firm is switching insurers, report any potential claims to the incumbent insurer prior to the expiration date of coverage. Fully disclosed on the new business insurer’s application. Discloser to the incumbent insurer continues coverage for this issue past the expiration date. Your new malpractice insurer’s claims-made policy language will exclude coverage for this matter.
4. For claims made prior to the expiration date of current coverage and a different insurer’s policy is bound for renewal make sure you notify both insurers prior to the renewal date. Remember with claims-made coverage, once the old insurer’s policy expires that insurer is not responsible for new matters not reported. Conversely, the new insurer is not responsible for claims made prior to the effective date of new coverage.
5. Finally, just because you reported claims or potential claims on the renewal insurance application it may not constitute reporting the claim to the insurer. Make sure to follow the insurer’s instructions for reporting claims.
Following the above tips will help the firm avoid potential “prior knowledge” issues at claims time.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080