Recently, a customer of ours was ordered by the Employment Relations Authority (ERA) to pay compensation to a former employee. They only informed us of the situation after the judgement was issued. We lodged a claim with their insurer.
Failing to notify your insurer as soon as you become aware of an issue that could give rise to a claim could result in the claim being declined, especially if the costs the insurer is being asked to pay could have been lower if they were involved earlier in the process. This applies especially to legal costs, which are insured (for accepted claims), but only if the insurer has had the opportunity to agree to them, as they may have saved money or gotten a better outcome by using their own panel of lawyers.
This is not the first time we have been informed of potential claims after a decision has been reached (eg. by the Disputes Tribunal) or a settlement negotiated. In many ways it is understandable, the tradesperson tries to resolve the situation themselves before needing to resort to insurance. And they are probably successful in lots of cases, with defects being repaired and issues sorted. It can become a problem if the situation starts to get out of hand though, for example if the client becomes difficult or more demanding and won’t agree to reasonable offers.
If the builder has started to negotiate a settlement before involving their insurer this can jeopardise their cover, since the insurer hasn’t been able to agree to the terms of any negotiation and their position could be hamstrung by what has already been offered.
In the employment relations situation the builder didn’t have employment disputes insurance. However, they did have employers liability cover, which covers different stuff, but some of the claims against them in the ERA case may have potentially fallen within that policy. Unfortunately, the situation was settled via the ERA, and decisions made by the ERA aren’t covered under employers liability insurance (because there is a separate policy that covers this). We are still working with the insurer to see if parts of the claim can be insured, but this serves as a good example of why it’s important to get your insurer involved as early as possible when situations arise that could lead to claim. The insurer may have been able to cover some legal costs and advise the client in a way that could have resulted in a better outcome.
When should I notify my insurer?
Once there is some kind of formal notification of a claim against you it is time to notify your insurer. Examples include:
- An email or letter (or message via any platform) from the third party holding you responsible for loss or damage
- A letter from the third party’s insurer holding you liable
- Correspondence from the third party’s lawyer
Even if the issue doesn’t end up being an insurance claim, it is better to notify your insurer and not need to proceed with a formal claim, than it is to fail to notify them when a claim does need to be lodged.
In a Nutshell
If you are informed of a situation that you think could become an insurance claim you should notify your insurer straight away. Anything you do or agree to that they don’t have an opportunity to approve could affect your claim. It is better to notify situations, even if they ultimately don’t result in a claim needing to be made, than not notifying situations that do.