Reporting Potential Claims and Signing Tolling Agreements

By W. Brian Ahern, RPLU, president/CEO, Ahern Insurance Brokerage, one of the largest independently owned insurance brokerage firms specializing in the insurance needs of law firms. Ahern Insurance Brokerage is the Endorsed Insurance Broker of the Los Angeles County Bar Association.

Reporting a “potential claim” to your insurance carrier can be cause for concern for a law firm. The best course of action is to always report matters that you believe have a reasonable basis to evolve into a claim as you would an actual claim.

Definition of "claim." Understand how your policy defines a claim, and communicate this information to all members of your firm. Some policies require a “written demand,” while others require just a “demand,” which includes verbal demands.

Potential claims. Most policies also have a “circumstance reporting provision,” which refers to the reporting of potential claim matters. An example provision is:

If during the policy period an insured becomes aware of any fact, circumstance or situation, which may reasonably be expected to give rise to a claim being made against an insured and shall give written notice to the insurer, as soon as practicable (but prior to the expiration of or cancellation of the policy)…then any claim subsequently made arising out of such fact, circumstance or situation shall be deemed to have been made when notice was first given to the insurer.

This clause provides that by notifying the carrier of a potential claim during the policy period, you are actually triggering coverage for that claim under the current policy, regardless of when the actual claim is subsequently made. Read your policy closely to understand the specifics of its discovery provision.

Tolling agreements. The decision to enter into a tolling agreement—an agreement to waive a right to assert that litigation should be dismissed due to the expiration of a statute of limitations—is fact-specific. There are both advantages and disadvantages to signing one. Your carrier, insurance broker and defense counsel can help determine the best strategy for you. It almost always makes sense to report such requests to the insurer. (Some policies explicitly confirm that tolling agreement requests meet the definition of “claim.”) Once reported, the best course of action is to never sign a tolling agreement without the consent of your carrier.

Insurer evaluation. Underwriters may look at potential claims as closely as actual claims. An additional benefit of reporting potential claims is that you will not run the risk of a carrier denying coverage based on the issue of prior knowledge. This also allows new carriers to evaluate your risk without having to take on the liability of these potential matters. Reporting potential claims in an abundance of caution should have little impact on a firm’s ability to secure favorable insurance terms.

Final thoughts. Carefully evaluate matters that may have potential claim exposure. Be consistent with your reporting procedures, and provide detailed narratives. Talking to your insurance broker and/or defense attorney about reporting a potential claim is always the best course of action.