Most of the professional liability insurance policies offer coverage on the basis of ‘claims made and reported basis’, requiring claims to be made and reported during the applicable policy tenure only. Simple right? However, there are certain components which must be satisfied to ensure the coverage,which are as below:-
Make sure the coverage is active
First is the obvious thing. The claim will be settled only if the policy is in an active state. It means, claims must arise against the policyholder during the policy tenure, which usually runs for one year. For instance, if the professional liability insurance term is from March 2nd, 2017 to March 2nd, 2018, a claim would require being filed during those effective dates only. In case the claim was made before March 2nd, 2017, for instance, on December 22nd, 2016, it would not be covered under the policy. Similarly, if the claim is made after the policy tenure, for instance, July 2nd, 2018, it would also not be covered because the claim would fall outside the tenure of the cover.
Second, all claims must be reported to the professional liability insurance company within the tenure in which it is made, subject to certain exclusions. Taking the above example forward, if a claim is reported to the insurer on April 2, 2018, after the expiration of the policy, the claim would not be covered due to late reporting.
However, in some instances, the policies give the ability to report claims during an extended reporting period as well. The automatically extended reporting period in the case of most insurance policies varies between 30 to 60 days. Some policies may also give you a generous 120-day automatic extended reporting tenure as well. Although the claim still requires being taken up against the policyholder during the policy tenure, the extension gives the policyholder the extra time to report a claim after the policy has expired.
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Reporting of circumstances
Another thing that needs to be considered is the reporting of circumstances. A notice of circumstances is made when the policyholder reports to their insurer, during the policy tenure—a situation or event which they believe may give rise to a claim. Usually, there are various elements which are included in a list of requirements that should comply with for the matter to be qualified as circumstances reported under the policy. The list should have the following details:-
- When and how the policyholder first got to know about the circumstance
- Reasons behind anticipating the claim
- Nature and dates of the alleged situation
- Any alleged damages or injuries which you may sustain from the circumstance
- Names and other details of the potential claimants, if available.
If a policyholder reports a circumstance properly during the policy tenure and the same is accepted by the insurer, then any claim which subsequently arises in relation to the circumstance would be listed as the date the insurer originally received the claim notice, provided the issues are related to the original notice of circumstance.
Case
J.K Hospital was insured under professional indemnity insurance policy. The company had purchased the policy to provide coverage to its doctors against professional errors and negligence. The policy was purchased on 2nd April 2013 and was effective till 2nd April 2014. At the time of renewal, the company renewed the policy which was now in force from 2nd April 2014 to 2nd April 2015.
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On 1st January 2014, the hospital was sued by Rajiv Gupta, one of its patients, who alleged that the hospital overcharged him. On 2nd May 2014, that is during the tenure of the renewal of the policy, J.K Hospital informed the insurer about the lawsuit.
In order to trigger coverage, it was necessary that the claim should be made and reported during the policy tenure. However, in this case, the insurer refused the claim because the claim was made in one policy tenure but reported in the tenure of another policy. To get the coverage, J.K Hospital should have made and reported the claim during the tenure of the policy only. As there was no extension clause attached to the policy, the insurer was not liable to settle those claims which arose earlier but reported later, even if the policyholder had renewed the policy.
