Give Prompt Verbal and Written Notice of a Claim

April 13, 2006

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Selecting the types and levels of insurance is vitally important to a small business owner seeking to avoid day-to-day liability risks. So an owner should follow some general insurance guidelines if he or she wants to take full advantage of the protections purchased.

Generally, all insurance policies have a clause that requires the insured to give prompt notice of a claim. This is best done immediately by way of a telephone call, which is always followed by written notice in the form of a letter.

This telephone call and letter should be recorded in a log. The date, time and name of the other party should be recorded when any verbal communication occurs.

Policies may contain very specific requirements for giving notice. For example, if a summons and complaint were received, the insured will usually be required to forward a copy to the insurance company. Failure to follow these exact requirements may result in the notice being deemed defective.

Where notice is not given or is defective, the insurance company may deny the claim. However, in all states except a few (see below for the specific states), for the insurance company to legally deny the claim, it must be able to prove that it was prejudiced by the failure to give adequate notice.

If an insured party was sued and a default judgment was entered against the insured because he never responded to the suit (and never notified the insurance company of the claim), the insurance company might be able to deny coverage.

On the other hand, most failures to give adequate notice are harmless. In this case, in almost all states, the insurance company cannot deny coverage. The District of Columbia, New York and Illinois, however, follow an older rule, which allows the insurance company to automatically deny coverage when adequate notice was not given, even though the insurance company was not prejudiced in any way.

Giving prompt verbal and written notice eliminates these issues.