Once in a while, we’ll come across someone who has a potential claim, but isn’t sure if it’s worth pursuing. It’s a difficult position to be in and often leads people to ask,
Can I ask my agent about a claim without the insurance company finding out if I decide not to file it? What if I decide later on that I do want to file the claim?
It gets a bit sticky here, but depends on one specific concept.
Can I Ask My Agent About A Claim Without The Insurance Company Finding Out?
Your insurance agent is exactly that, an agent of the company, who acts on behalf of the company, and transacts business as if the agent were in fact, the company in most respects. There are specific limitations on the agent’s authority, such as the amount of time they’re allowed to bind coverage for and whether they can bind within the computer only or with a paper binder. Generally speaking though, you may consider your agent to be an extension of the company, with all the rights and responsibilities therein inherent.
Since we know that the agent is the company, we have half the answer. But is there something that requires the agent to report potential claims to the carrier? Absolutely. Actually, there are several things. First of all, when you inquire about a potential claim, the agent has constructive knowledge of the claim. In other words, the agent knows or should know that a claim may arise out of the situation. The agent is then obligated to report this to the insurer. This allows the insurer to investigate and/or properly defend the claim in the event it should be filed. If an agent can be construed to have had knowledge of the claim based on the facts of the inquiry, the agent should then report the potential claim to the insurer.
It’s important that we draw a distinction here. Insurance brokers work for you, not for the company. They are your agent. On the other hand, captive agents work for that one insurance carrier. They generally may not place business anywhere else except in certain, very limited circumstances. For example, when a state FAIR plan is an appropriate option. Regardless of the fact that he is paid by the insurance company, the broker works for you. If you work with a broker who is able to sell multiple carriers, you’d be able to discuss claims with them because they work for you, not for the company. The concept of agency is rooted in whom you represent, and that’s a crucial line here.
Beyond this, it’s also worth mentioning that certain types of claims, under certain types of policies, must be filed or have notice given to the insurer within a certain amount of time. If that notice is not given, or was not constructively given to the agent and then passed on to the carrier, the claim may be barred. This is heavily dependent on policy language and the facts of the claim, but it’s certainly a risk.
An insured’s misunderstanding of available coverage, and believing that coverage is not applicable to the situation can potentially excuse late notice to the insurer. This requires due diligence on the part of the insured, which can be a difficult standard for an insured to meet. A simple browse of the declarations page is often times not sufficient, because the policy must be read and analyzed critically. This excusing of late notice to the insurer is also highly dependent on the insured’s good faith belief that coverage would not apply.
[It has been held] that an insured’s failure to give timely notice was justified where a homeowner did not realize that his policy provided liability coverage for off-premises conduct. In Seeman v. Sterling Ins. Co., 699 N.Y.S. 2d 542 (3d Dept. 1999), the insured had acted with due diligence to give notice as soon as he received a letter from the injured party’s attorney that advised him to notify his carrier. – “On Notice”, M. Aylward; Morrison, Mahoney.
In general, notice of [a potential claim] is required when an insured “becomes or
should become, aware of facts which would suggest to a reasonably prudent person
that the event for which coverage is sought might reasonably be expected to produce a
claim against the insured.” Reliance Ins. Co. v. Athena Cablevision Corp. – “On Notice”, M. Aylward; Morrison, Mahoney.
Are you a reasonably prudent person? You will be presumed to be, and will be held to that standard and therefore, expected to have acted as a reasonably prudent person would. Notice is required when an insured knows or should have known of a potential claim arising out of an occurrence. The insured is required to notify the insurer or the agent of the insurer. In the latter case, the agent is required to provide that information to the insurer. Note that the second cited case is over a decade older than the first, and from a very different jurisdiction (TN and NY, respectively, which most people know to interpret such things quite differently.) We point this out simply to make it clear that these are long established precedents which should guide an insured’s actions, not simply provisions of an insurance policy which may have arguable applicability in a given set of circumstances.
Can I Ask My Agent About A Claim Without The Insurance Company Finding Out?
In Reliance, it was stated that not only must notice of an actual claim be given as soon as the insured knew or should have known of its existence, but also that an event which might reasonably result in a claim must be reported under the same standard. This makes it crystal clear that both claims and events with the reasonable possibility to give rise to claims must be reported in a timely manner. This appears to conflict with Seeman above, but the two address different aspects of the same problem and are actually complementary. Reliance speaks to when to give notice of a claim or possible claim (immediately), whereas Seeman speaks to the insured’s duty of due diligence to determine if coverage is available, and the fact that a good faith belief that coverage does not apply may (importantly, not must) excuse late notice to the insurer. The two dovetail together, in that your agent is likely to have a solid understanding of what’s covered under your particular policy and what’s not. Could timely, proactive notice to the agent relieve the insured of the duty of due diligence? Unlikely, but that’s left an open question by the two citations above.
Ultimately, the insured and the agent have a duty to notify the insurer of a claim or potential claim. Can you ask your agent about a claim without the insurance company knowing? No. However, if no claim is filed and no payout is made, mere notification of a potential claim often does not impact premiums.