The Melito & Adolfsen Law Firm

DON'T TAKE A CHANCE AND NOT GIVE NOTICE OF A POTENTIAL  CLAIM TO YOUR INSURANCE COMPANY - You can Void your Coverage!!! 

         One of the most common experiences faced by  individuals, businesses, attorneys, doctors and other  professionals is whether to give notice to the insurance  company of a potential claim.  There is a general  reluctance on the part of people, even attorneys who  should know better, to give notice of a potential claim.  The most common concern is that giving notice of a  potential claim will result in increased rates. This is  not so. Even in the case of automobile coverage, a claim  will result in a surcharge only if the insurance company  is required to make a payment under the law of most  jurisdictions.  With all types of coverage, the mere  reporting of a potential claim will simply result in a  file being opened and, if no claim results, the file will  thereafter be closed based on the procedure of the  particular insurance company.  

         A recent case illustrates the danger of not giving  notice of a potential claim although it involves a  slightly different aspect of the notice requirements in an  insurance policy.  In Executive Risk Indemnity, Inc. v.  Pepper Hamilton LLP, - - NY3d - -, 2009 NY Slip Op 07453 (October 20, 2009) New York's court of appeals decided a case under the laws of Pennsylvania where the law firm was  located.  In that case, the activities of the law firm's  client had led to some lawsuits against the client.  The  firm had not been sued but it was apprehensive of its  possible malpractice exposure.  It had several insurance  policies providing both primary and excess coverage and  each policy excluded coverage for a category called "prior  knowledge exclusions" which involved acts that the insured  might foresee as producing a claim.  The law firm did not  report its apprehensions of possible malpractice exposure  in applying for coverage.  The New York Court of Appeals  applied Pennsylvania law (based on where the firm was  located) and concluded that the firm was on notice of its possible implication in the wrongdoing and that "a  reasonable attorney with [that] knowledge should have  anticipated the possibility of a lawsuit."  Consequently, two of the insurers were allowed to void the coverage and not pay the claim. 

        We like to tell what we call "cautionary tales" and  advise clients, including law firms, that it is better to  advise the insurance company of the potential for claim  than to try and hope that there won't be a claim when  there is knowledge that there might be one. Even where the  insurance company may be required to show prejudice, such  as where the insured fails to give notice of a claim or  lawsuit, it is never worth the risk of having to explain  why any information, even only a potential claim,  was  held back. Keeping the insurance company on notice of the  potential for a claim has no down side - not advising the  insurance company has potentially serious consequences,  i.e. the loss of the coverage.