Contributed by: Eric M. Alderson, Risk Manager
"Circumstance / Incident / Pre-Claim". These terms are often used interchangeably to describe the process of filing a report to your insurance company for a matter that has not yet met the criteria of a "claim", but which you reasonably believe eventually will.
Let's start by understanding what insurance carriers consider to be a "claim".
- Navigators Insurance Company defines a claim as, "...a demand for money or services received by the Insured arising out of a wrongful act or pollution incident in the performance of professional services. A claim also includes the service of suit or the institution of an arbitration proceeding against the Insured."
- Travelers Insurance Company says, "...1. a demand for money or services; 2. a civil proceeding commenced by service of a complaint or similar pleading; or 3. a written request to toll or waive a statute of limitations relating to a potential civil or administrative proceeding, against any Insured for a Wrongful Act."
- And finally, CNA (Victor O. Schinnerer & Co.) simply states, "...a demand for money or services, naming you and alleging a wrongful act or pollution incident."
These definitions essentially all tell us that a claim exists under three conditions:
- a demand for money or services,
- naming you (the Insured),
- and alleging a wrongful act (negligence).
There is a common misconception within the industry that a claim has not been made against you, or that there is no need to involve the insurance company, until you are formally served with a lawsuit. But by definition, we see that is not the case. Navigators and Travelers go the extra step to outline "service of a suit [or compliant]" specifically as a claim, but notice the use of the terms, "or" and "also" within the definitions, which serve to solidify the concept that service of a suit is just ANOTHER scenario by which a claim can exist, in addition to those outlined above. And that while those conditions are met in a lawsuit, they are NOT mutually exclusive as the conditions can occur in the absence of a suit as well.
In other words, if a client sends an email to inform you of a problem on a job and indicates that its your fault and you need to figure out how to fix it and/or pay for the remedy, you have a claim on your hands, regardless of whether or not a formal lawsuit has been filed.
But what happens when your client hasn't yet made that demand? What if they haven't specifically pointed to you and said, "this is your fault, you need to pay for this"? Maybe all they've done is contact you to let you know they're dissatisfied with the progress, or there are fee or budget issues, or just about any other "problem" for which they'd like your response. In many cases, it comes in the form of a subpoena for your records regarding a lawsuit in which you have not been named.
It's very common to be concerned about how to respond, to be unsure of what information is necessary to provide or even how to answer questions you may feel are leading or could otherwise be incriminating. Under these conditions (which is by no means exhaustive), you're dealing with a Pre-Claim.
Promark Agency (except in very unique situations) only offers professional liability policies to our design clients that include a coverage called, "Pre-Claims Assistance". Each carrier has a slightly different approach and may use a different marketing name, but the coverage provided is basically the same. Pre-Claims Assistance can be triggered by any of the conditions outlined above, giving you access to the insurance company's claims team, which is generally comprised of attorneys experienced in design and construction litigation, or, as is often the case, retain local legal counsel on your behalf to discuss the details of your situation and advise you on how best to navigate the matter. The best part is... its FREE!
Ok.... its not exactly free, you still have to pay your annual premium for the policy, but as a benefit for being a policy holder, this supplemental coverage is provided by the insurance company at NO additional cost, it is NOT subject to your deductible, does NOT erode your liability limits, and is NOT included in your annual claim totals. The insurance companies feel so strongly about early intervention to mitigate claims that they will literally hire an attorney to guide you through a pre-claim, at their expense, just for the possibility of keeping the matter from becoming an actual claim. Statistically, early intervention of a claim keeps costs low, so from the insurance company's perspective, this is money well spent. But, the benefit to you, the policy holder, can be immeasurable. For anyone who has taken a seminar with me in the past, you've likely (if you weren't sleeping) heard me talk about "soft costs" associated with claims; time, stress, lost revenue/billable hours, client relations, etc. With Pre-Claims Assistance and access to attorneys who work on your behalf, you'll have true peace of mind during what can otherwise be an all-consuming, stressful period of unknown.
Real Life Scenario:
In Fall of 2018 I received a call from a design firm downstate that they had been sent a subpoena for their records on a project where a contractor had fallen from scaffolding and had been seriously injured. This firm, being very proactive with their claims intake, immediately recognized; 1. we have a seriously injured worker, and 2. the worker's attorney is requesting our project file, and specifically included a request for any photos of the site taken during walk throughs and regular site visits. The firm was concerned not only for the possibility of being dragged into the impending lawsuit based solely on the severity of the worker's injuries, but was very alarmed by the request for job site photos. Luckily there were no incriminating photos in the project file, but it brought up an interesting question; "What if we have a picture that shows an unsafe site condition? Does that create a liability for not having recognized the condition or having done anything about it?"
This matter is still ongoing and will likely undergo significant litigation until final resolution, but to date no claim has been made against the design firm. Acting proactively, and invoking Pre-Claim Assistance coverage under their professional liability policy allowed them to consult with their insurance company and attorney to make sure that their responses were calculated and allowed them to discuss all of their concerns with experienced legal professionals who are on-call to help guide them through this process. The firm is not left to navigate tenuous waters on their own.
The message, USE THIS COVERAGE! Take advantage of the ONE FREE THING the insurance company will ever give you and be proactive about your claims handling. Let the insurance company get involved early and keep that claim record clean. Underwriters view firms with pre-claim files in a much more favorable light than firms with no pre-claim reports. It indicates that you and your staff are sensitive to claims, you proactively manage potential claims and that managing your risk is a focus area and not an afterthought. It also shows that you're a firm that understands your relationship with the insurance company and want to give them all the tools possible to advocate on your behalf in the event the matter does evolve into a claim. Remember, effective risk management means early intervention, which will ultimately result in a better claim record and lower premium.