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May 31, 2018 Practice Points

The Potentially Puzzling Question of Reporting Claims Likely with an SIR

Should you not report a claim to the company's insurer to protect your loss history?

by John Vishneski

Puzzle: A suit against the company is filed that does not look too serious. It is covered by the company's general liability insurance policy. However, in all likelihood, it will be resolved within the company's self-insured retention. Should you not report the claim to the company's insurer to protect your loss history?

Answer: Despite a popular view that not reporting claims protects against a premium increase or being dropped by your insurer, it is not a good idea to choose not to report a suit against your company to your insurer. Being subject to a premium increase or getting dropped usually happens at renewal time, when you are required to submit underwriting information to your insurer (or other insurers bidding for your business), and smart insurers ask in the application for loss history. Even smarter insurers (pretty much all of them) ask you to disclose types of suits or claims or occurrences that matter for their underwriting evaluation, without regard to whether you reported that claim. They want to know whether your company has been the target of certain types of liabilities and the frequency with which they occur.

If you chose not to report a claim and then you disclose it on renewal, you will get the same hit to your loss history that you would have if you reported it in the first place. Worse, if you chose not to report and then do not disclose at renewal, your insurer may be able to rescind (retroactively cancel) your policy when the truth comes out—usually when you have a big claim for which you really need coverage. That is bad news.

You might ask, "But, isn't the hit to my loss history smaller if the insurer doesn't have to pay anything for the loss?" In other words, if you don't report and take care of the claim yourself, even if you disclose the suit at renewal, isn't that better than reporting and having the insurer pay some of the loss (assuming it exceeds the self-insured retention). This is still a dangerous game. What if you have misjudged the suit, and it becomes a major loss? You will want the insurance to respond in that event. If you don't report, you lose coverage. If you report, you can always tell the insurer to stand down later and pay for the loss yourself. That minimizes the hit to your loss history without taking the risk of foregoing insurance when you might need it.

John Vishneski is with ReedSmith, Chicago, IL.

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