Errors & Omissions | Claims Made and Polling Letters

CLAIMS MADE AND POLLING LETTERS

“Polling Letters” are indispensable errors and omissions (E&O) tools of utmost importance. As the name suggests, these letters “poll” the insured’s key employees to inquire whether or not those polled are aware of any incidences that qualify as or may lead to a “claim.” When coverage is written on a claims made basis, situations arise that require their used.

Coverage written on a “claims made” basis responds to defend and/or pay/indemnify only those “claims” made or filed during the policy period. Any “claim” or “potential claim” known to have been made or received during the policy period but not reported during the policy period or applicable extended reporting may result in severe coverage or limits restrictions or the total denial of coverage.

There are two primary “types” of claims made policies:

• “Pure” Claims Made; and • Claims Made and Reported

A “Pure” Claims made policy responds to claims made during the policy period provided the covered act (wrongful act, error or whatever triggers coverage) occurred after the retroactive date. A Claims Made and Reported form responds only if the “claim” is reported to the carrier in the same policy year the “claim” is received.

Both types have extended reporting period (ERP) provisions (“tail” coverage), but the ERPs are triggered at different points in time. In a “Pure” Claims Made form the “basic” or “automatic” ERP is triggered if or when the policy is cancelled, whether by the insured or the insurance carrier. But when coverage is written on a Claims Made and Reported basis, the ERP is triggered at the end of every policy period – because the “claim” must be reported in the same policy year it is received by the insured.

When liability coverage is provided by one of these claims made forms, polling letters are necessary (not just recommended) when any one of three events occur: 1. When the “basic” or “automatic” extended reporting period is triggered; 2. When there is a reduction in coverage; or 3. When the retroactive date is advanced.

Triggering the Extended Reporting Period

Whether the event triggering the ERP is the cancellation or non-renewal of a “Pure” Claims Made policy or the end of the policy period in a “Claims Made and Reported” policy, the insured must be polled to inquire whether or not there are “claims” that require reporting to the insurance carrier. If a claim that should be filed is not, the insured could be penalized by severe coverage restrictions or the outright denial of coverage.

Extended reporting periods allow the insured additional time beyond the end of the policy period to submit a “claim.” Policy language may allow the insured up to an additional 30 or 60 days beyond the expiration of the policy period to submit the “claim.” A “claim” submitted

during the ERP is treated as if it was submitted on the last day of the policy period.

Anytime an ERP-triggering event occurs, polling letters must be completed to assure all “claims” and potential “claims” are revealed. These letters should be completed no later than 10 days following the end of the relevant policy period. However, some additional time may be acceptable if the ERP is 60 days.

Reductions in Coverage and an Advanced Retroactive Date

These changes are closely related because the insured is losing protection that existed previously. When the retroactive date is advanced, acts that occurred after the previous retroactive date and before the new retroactive date are no longer extended protection. If the insurance carrier attaches exclusionary endorsements at renewal, the insured does not have the breadth of coverage previously available.

Because the insured is negatively affected by a reduction in protection, the insured needs the opportunity to file any potential “claims” covered under the current policy that may not be granted coverage by the renewal policy. Polling letters provide an effective method to gather this information.

Regardless which of these two events trigger the need for a polling letter, the insured should complete all polling letters no more than 10 days prior to the expiration of the current policy. This allows time for any newly discovered “claims” that may be excluded under the renewal policy to be filed with the carrier.

Key Definition

“Claim” is a key term that appeared within quotation marks throughout this whitepaper. When constructing polling letters, the definition of a “claim” as provided in the policy must be included within the polling letter. Why? Because there is no singular definition of a “claim.” A “claim” may be defined in the policy as the receipt of a legal document (suit papers); but the definition may be as broad as a threat to sue or a demand for money. Regardless, provide the definition within the polling letter. If the policy includes “potential claims” or a similar term within its definitions, this definition should be included as part of the polling letter as well.

Who Must Complete the Polling Letter?

The larger the company, the more responses required. Neither the CEO, CFO nor COO know every possible situation that may give rise to a claim. Each person has a different area of responsibility, expertise and knowledge of events.

When the organization is a... The polling letter should be completed by:

Corporation

LLC

Partnership (LLP, GP or Other)

All officers and directors at minimum

All members and managers at minimum

All partners at minimum

Sole Proprietorship

Learn to Love ‘Em

The sole proprietor and any key managers at minimum

Add polling letters to your new business or renewal routine anytime a claims made policy is involved. Polling letters are especially important when coverage is written on a Claims Made and Reported form because they need to be completed at every renewal.

Claims made forms are most often used to provide Directors and Officers (D&O) coverage, Employment Practices Liability Insurance (EPLI) coverage, errors and omissions (E&O) coverage, professional liability coverages and sometimes even general liability coverage for unique or difficult insureds. When any of these situations arise, do the client and the agency a favor and use polling letters to assure claims are filed on time and with the correct insurance carrier.

> Chris Boggs,

IIABA Executive Director of Risk Management and Education