Avoid Insurance Coverage Disputes with Incident Reporting Procedure

Suppose a resident’s unit is burglarized or a site visitor falls when a stairway handrail becomes loose or something happens at your site which causes property loss or bodily injury. Are you certain your employees let you know about certain incidents like these as soon as they happen? If they don’t, you risk insurance coverage problems.

Most insurance policies require owners to notify their insurance companies as soon as possible after there’s any incident that could lead to a claim. If your notice comes too late, the insurance company can refuse to cover you.

Since your site employees are your eyes and ears, it’s important to establish a procedure for employees to immediately report to you any incidents they’ve seen or heard about. That way, you can promptly alert your insurance company about the incident.

When You’re ‘On Notice’

Your time to notify the insurance company begins to run as soon as you’re “on notice” about a potential claim. Obviously, you’re on notice when you see a resident trip and get hurt in the hallway. You’re also on notice when your leasing agent tells you about water damage to a vacant unit. But you may even be on notice for an incident that you neither saw nor heard about. That’s because the law presumes that you’re aware of incidents your employees and leasing agents see and hear. Your employee’s or agent’s knowledge of an incident can be considered yours, even though you never found out about it.

Much litigation involving property liability insurance involves when notice was given or if notice should have been given in the first place. In one case, an owner notified his insurance company more than two years after he learned a construction job had damaged his site. In December 2006, residents began to complain about noise and vibrations caused by a nearby construction project. Later that month, the construction on the neighboring property stopped, but it began again in late 2007. In January 2008, the walls had shifted in the site’s building and he filed a notice of loss with his broker, who forwarded it to the insurance company around Jan. 17. The insurance company denied coverage for any losses that occurred before Dec. 19, 2007, citing late notice. The insurance policy required the owner to provide “prompt” notice of any losses. The court sided with the insurance company, stating that the owner failed to give his insurer timely notice of his claim [Pfeffer v. Harleysville Group Inc., November 2012].

In another case, an owner sued an insurer after the insurer refused to cover a claim. The insurer asked the court to dismiss the case without a trial, claiming that it clearly didn’t have to defend the owner because the owner didn’t file a timely claim. A resident had sued the owner after she fell down a staircase within her unit in 2002. The owner didn’t notify its insurer about the accident until 10 months later. The building superintendent had discovered the resident lying on the floor inside her unit. In this case there was some issue as to whether the owner had some justification for assuming that the resident’s hospitalization after her fall was attributable to a prior medical condition. Nonetheless, the staff member hadn’t reported to the owner that he had seen an injured tenant [426-428 West 46th St. Owners, Inc. v. Greater New York Mutual Insurance Company, November 2008].

Diligently reporting incidents that may trigger liability as soon as possible after they occur may save you paperwork and stress from litigation months or even years down the line. In one case, an owner was sued for negligence after a murder occurred in its building. The owner sued its insurance company for denying coverage. The insurer claimed that the owner didn’t give notice of its claim on time. Fortunately, the court was persuaded when the owner testified that it didn’t know at first that an intruder had committed the resident’s murder. And the owner wasn’t sued by the resident’s family until some time after the incident. The appeals court eventually ruled against the insurance company [Agoado Realty Corp. v. United Intl. Ins. Co., November 2001].

Set Reporting Procedure

To protect themselves, owners and managers should establish a procedure for site employees to report mishaps.

Educate your staff about site incidents. Meet with your site employees and instruct them to be on the lookout for mishaps that could lead to insurance claims or lawsuits. Give your employees plenty of examples of site incidents that they should report to you, such as slips, falls, trips, stolen property, water damage, smoke damage, etc. Reinforce your meeting with a memo that tells how to identify and report site incidents. See Model Memo: Inform Employees of Incident Reporting Procedure.

Give employees forms to record incidents. Use forms for employees to record information about potential injuries, property damage, or other incidents they’ve seen or heard about on the property. We’ve prepared a Model Form: Use Site Incident Report to Protect Yourself from Liability. Keep a supply of these forms at the site, and show your employees how to fill them out.

Use forms to notify insurer about possible claim. Once you receive an incident report from a staff member, send the handwritten report to the insurer’s agent with a cover letter identifying the owner, the property, and any other relevant facts that could assist the insurer in processing the claim. Some agents may prefer telephone notification instead.

To avoid confusion, you should ask your insurance agent to put its incident reporting procedure in writing, and keep the written procedure with your other insurance documents. That way, your broker can’t claim that you didn’t follow proper procedure.

Get written acknowledgment of your report. A good insurance agent will give you a written acknowledgment of any incident that’s reported. Once you receive acknowledgment, usually within 48 to 72 hours of the owner’s first report, file it away for safekeeping.