Notice to excess casualty insurers

There once was a time when experienced legal counsel and claims professionals could, with some level of accuracy, evaluate whether excess insurers needed to be placed on notice of a litigated matter. That time seems to have passed. Now, it can be extremely difficult to predict which layers of coverage will be impacted, largely because of the effect of “social inflation” on verdicts and settlement values. With that as a backdrop, it’s critical to remember that failing to provide timely notice to excess insurers can jeopardize your ability to collect the insurance purchased to offset otherwise covered litigation exposures.

You should take steps to avoid unnecessary conflict with insurers over notice issues and seek to understand your potentially available coverage, with a focus on how notices are driven by the nature of the coverage purchased. Below are some general notice-related recommendations to consider:

1. When Claims-Made or Occurrence-Reported coverage terms are getting more restrictive or the limit structure becomes less advantageous at renewal, care should be taken to notice not only pending suits, but also all claims, occurrences, events, or circumstances that might give rise to a claim.
2. Evaluate giving permissive notice of occurrence or Integrated Occurrence (“IO”), benefits of which include:
   • Potentially relieving you from having to give a second notice of an occurrence when it later becomes likely to involve the policy. That said, while the form is silent on this point, it is better to keep insurers updated and stay engaged with them as the litigation progresses.
   • Locking in the limits of liability, which are fixed at the date notice was given, along with the relevant terms and conditions of the policy in effect at the time that notice was given.
   • With an IO notice, integrating future occurrences into the policy period in which notice was given.
3. IO notices need to be crafted carefully so they are broad enough to encompass the potential adverse development that you are most concerned about, but not overly broad as you will be almost certain to see a go-forward exclusion on future limits that corresponds to the scope of the IO declared.
4. Where notice is being given to excess insurers, especially in an expiring Claims-Made or Occurrence-Reported tower of coverage, that notice should be directed to all layers of coverage in the tower.
5. Have a bias towards early and expansive notice to excess casualty insurers. It’s generally a best practice to notice all potentially responsive lines of coverage, layers of coverage and – where applicable – years of coverage, as soon as you are aware of a suit.
6. Don’t fail to provide notice to insurers because you think you won’t be found liable…remember how unpredictable and unfair juries can be.
7. Don’t rely on “notice-prejudice” rules to excuse a late notice. It’s far better to have provided timely notice and avoid these issues altogether.
8. Remember that timely notice to insurers will help ensure more of the litigation costs incurred will be covered. Insurers will seek to avoid payment of any defense or settlement costs incurred prior to notice as non-covered “voluntary payments” made without their consent.
9. After notice has been given, keep insurers updated and respond to reasonable information requests. You want to be sure to meet your duty to cooperate with insurers and you may need their consent to settle.
10. If an occurrence receives public media attention, you should notify insurers because if related litigation develops adversely, it will be difficult to convince them that you did not know/should not have known the loss could impact the policy. After a bad outcome, it can be difficult to convince an insurer suffering from “hindsight bias”¹ that you had reason to believe a loss was not likely to impact the policy.
11. Closely follow the notification provisions found in each policy, making sure you give notice to the correct department in the manner specified.

Whether you provided timely notice will ultimately come down to the specific policy language and the facts at issue as interpreted through the lens of relevant state law. Our recommendations above are designed to help you avoid disputes with insurers and receive the full benefit of the coverage purchased.

Excess Casualty Policy Forms

Claims-Made

These are designed to cover claims involving a loss occurring on or after a specified retroactive date and filed during the policy period, or within an extended reporting period, but providing notice even a day late can result in a denial of coverage.

Occurrence

An occurrence policy provides coverage for harm alleged to have happened during the policy period, regardless of when you are sued or file a claim. The specific language can vary, but occurrence policies may require notice when a loss is reasonably likely to implicate coverage, immediately, or as soon as practicable/possible. Notice rules under occurrence policies may be a bit less harsh than under claims-made policies, but timely notice is still critical. State law can have a great impact on determining what’s timely. Some states have “notice-prejudice” rules, which may prevent insurers from denying your claim based solely on delayed notice; however, the application of “notice-prejudice” varies from state to state, with some states requiring the insurer to prove they suffered prejudice due to the notice delay and others requiring the insured to disprove such prejudice. Some states only require insurers to demonstrate a probability of prejudice to deny coverage.

Occurrence Reported

The “occurrence reported” policy covers qualifying occurrences within the meaning of the policy which are reported during the relevant policy period. It is sometimes considered a hybrid of the Occurrence and Claims-Made policies discussed above. If any Executive Officer becomes aware of an occurrence likely to involve the policy, notice must be given as soon as practicable and, in any event, during the Policy Period or the Discovery Period, if applicable. Precisely when an occurrence becomes likely to involve the policy is a question of fact. If an occurrence is not likely to impact the policy, you can give “permissive notice” of that occurrence at any time during the Policy Period or the Discovery Period, if applicable. Such notice is meant to be precautionary in nature because the Occurrence(s) at issue do not involve the policy at the time notice is given but may conceivably do so at some point in the future. Finally, you can give permissive notice of an “integrated occurrence”/IO at your option by designating it as such. All covered damages falling within the scope of the IO may be integrated together as a single occurrence.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

Footnote

¹ Hindsight bias is the human nature to look back at an event and believe you could have predicted the outcome. It makes you believe your judgment is better than it is because, once you know the outcome, it becomes much easier to construct a plausible explanation as to how things developed.

Author

---

Jim Dorion

Claim Advocacy Practice Leader, NA and Head of Liability Claim Consulting

email Email

---