17 Mar Personal Umbrella Claims Reporting Procedures
Question: What are the reporting requirements of a liability claim to the carrier that doesn’t write the underlying coverage? I’m thinking of a client who has a minor car accident and receives a lawsuit two years later, and the excess carrier was never notified of the accident.
Answer: Having reporting procedures for umbrella claims, whether personal or commercial, is extremely important. The umbrella form you submitted states: “Duties in the Event of Occurrence, Offense, Claim, or Suit.”
You, any Insured, or any person requesting coverage must do the following: Notify us as soon as possible of the date and facts relating to any event, occurrence or injury, that is likely to involve this policy.
This is a very common condition in an umbrella. Not only is it important to report actual umbrella claims, but also to report claims that might involve the policy. Some forms say, “promptly report all losses to which this policy may apply.”
If the umbrella is with the same carrier, reporting a loss to the underlying policy is likely to put the umbrella/excess policy on notice. However, it is not a good idea to assume this is true. When you send in the underlying claim, include the umbrella policy number as well. If the umbrella is with a different carrier, it is even more important to report the loss to that carrier. How do you know when a loss is “likely to involve” the policy?
In any event, the agency needs a written procedure for making claims to the umbrella policy. As a “rule of thumb,” you might want to report any loss that involves bodily injury, especially if more than one party is injured. Certainly, any loss that involves death, loss of limbs, loss of physical function, or loss of income should be reported. Any property damage exceeding $100,000 in damage should be reported. Personal injury claims should be reported. Sometimes the umbrella’s personal injury coverage is broader than the underlying. Any claim involving watercraft, recreational vehicles, or pets should be reported. Dog bite claims are one of the leading causes of large liability losses.
Some agencies err on the side of caution and report all liability claims to the umbrella carrier as “incidents” rather than claims. This gives the carrier an opportunity to set up a file and gather information in the event of a future claim. Also, some umbrella carriers might want to join in the defense with underlying carriers to keep a claim out of the umbrella layer.
It might be a good idea to discuss this question with the umbrella carrier. What do they suggest? I had an agent friend recently report an “incident” and the umbrella carrier set up a reserve based on the policy limit. His loss ratio with the carrier went from 35% to 3,000%! There goes the year-end contingency bonus. However, the claim involves intentional bodily injury caused by a permissive user of a vehicle resulting in the loss of a foot. I think it will most definitely involve the umbrella.
As is the case with all procedures, what your procedure says is not as important as the fact you have a written procedure that all members of the agency comply with. Keep in mind that the reporting requirement is the responsibility of the insured, not the agency. To avoid a possible E&O suit, it might be best to take a conservative approach to reporting these claims.