View the full text of this document - Martindale.com

More documents

Recommendations

Info

in the spotlight NOTICE PROVISIONS: Balancing Business Relationships With Insurance Claims By Amy I. Stickel Steve Cole/Photodisc/GettyImages It’s a common scenario for businesses— your company is working on a project with another company with which you have a good relationship, when something goes awry. It could be a problem with a building under construction or a product that doesn’t meet agreed-upon standards. The situation doesn’t appear to be dire, though, and you’ve successfully worked through problems before during your long history together. So after meeting with your organization’s management and the other party’s management and in-house counsel, you decide that the two of you can fix it without calling in the insurance company. However, straightening out the situation takes some time, and you eventually realize that it can’t be fixed. Things go from bad to worse, and you must make a claim to your insurance company. Unfortunately, the insurance company response is that, by refusing to notify it as soon as the original problem surfaced, you failed to properly exercise the notice provision in your insurance contract. Once that happened, you prejudiced the claim and now the insurer is balking at paying it. The Perils of Going Alone It’s a scenario that Charles George, a partner at Patterson, Dilthey, Clay & Bryson, L.L.P. in Raleigh, N.C., has seen before. “There are often good incentives for two parties to try to resolve problems by themselves. But something may start out as a little thing, and the next thing you know, it’s something bigger,” says George. He points to a recent situation he was involved with in which a company tried to fix a problem internally. This case involved a real estate company that hired a construction company to build a property. The property wasn’t built according to the agreed-upon specifications; but rather than report the situation to the insurer, the two Satisfying the notice provision is usually not the first thing that occurs to most in-house counsel while a situation is unfolding. companies decided to try to work together to solve the problem. However, after some time passed, it became clear the two companies couldn’t resolve the situation themselves. A lawsuit was filed and when George’s client, the insurance company, was finally notified of the claim, it argued that it didn’t have to pay because of the time delay in filing the claim while the companies attempted to work out the problem. “It put [both companies] in a bad situation,” says George. That situation isn’t unique, though: Satisfying the notice provision is usually not the first thing that occurs to most in-house counsel while a situation is unfolding. Those provisions tend not to be closely read, and they don’t usually offer a specific timetable for reporting claims. It can be unclear when the insurance company needs to be called, and the rules for notice provisions vary widely from state to state. “The notice provision is way in the back of the contract, and it’s not something that even the lawyers give any thoughts about,” George says. 28 www.martindale.com
DIY Approach Insurance companies may always prefer to be notified immediately about any potential claims, but in-house counsel have valid reasons to advise on holding off on a notification in some situations. “You have to weigh the pros and cons,” says Charles George, partner at Patterson, Dilthey, Clay & Bryson, L.L.P. “There may be reasons to handle it yourself.” The language also tends to be boilerplate— notice provisions usually call for policyholders to notify the insurance companies “as soon as practicable.” This is a vague definition that can allow for disagreements between policyholders and insurance companies, with the insurance companies often arguing that they should have been called in sooner, no matter when a claim was filed. Some situations also evolve so slowly it can be difficult to determine when a seemingly small glitch becomes a matter for an insurance claim. The scope of a problem may not even be clear to the businesspeople who are working closely on the situation. And if it’s not clear to them, employees may not think about alerting the legal department until it is too late. Variations Abound Even if a company files a claim, state policies vary widely. For instance, under Virginia law, the passage of time can be enough to violate the notice provisions—if a company doesn’t report an incident immediately, the claim can be denied. But under North Carolina law, there has to be a showing of prejudice to the insurance company for the claim to be denied, regardless of any time delay. “That’s just one example of two different states interpreting ‘as soon as practicable’ differently,” he says. “From state to state, one needs to be aware of the differences.” George points to a case in Virginia where a company waited 126 days to file a claim, only to have the insurance company deny it. From a business’ perspective, four months may not be much time in which to identify a potential claim and decide whether to report it, says George. The differences between states is further complicated for companies with business around the country. Simply determining which state’s standards are applicable can be Good reasons to avoid notifying an insurance company about a situation that could evolve into a claim include: ■ Business relationships Two companies with a good relationship may feel they can settle the issue themselves rather than bring in the insurance companies immediately. “If you’ve worked with someone for a long time and things are not working out, oftentimes, parties will stick with the situation and try to resolve it themselves,” he says. “Or you may have a situation where you are hoping to keep a good customer happy.” ■ Differing interests Insurance companies and their policyholders don’t necessarily share common interests and goals. Insurance companies report to their own stakeholders, and they are most interested in resolving disputes for the lowest cost possible, according to George. A policyholder, on the other hand, may be far more interested in retaining a business relationship—something that doesn’t worry the insurance company. ■ Rising costs for claims The more incidents a company reports, the more likely it is to see insurance rates increase. Some corporate situations are the equivalent of a fender-bender that doesn’t require bringing in the insurance company. “If you rear-end someone and you may be able to fix it for $100, you wouldn’t necessarily call the insurance company,” George points out. If you can convince the other party to send you the bill from the body shop, you’ve saved yourself rising rates and a lot of paperwork. a time-consuming process. George points to another client that was headquartered in Georgia, had purchased insurance in North Carolina and then had a claim in Tennessee. Determining which state’s rules to follow took some time to figure out. The key to determining whether to call in the insurance company often hinges on specific notice provisions and the laws in individual states. When deciding whether a situation warrants involving an insurance company, in-house counsel must understand the ramifications of what could happen if they do, and what could happen if they don’t. “Consider whether the insurance might apply, and the pros and cons to your organization in reporting it to your insurer. When in doubt, give notice to the insurance company,” George advises. Patterson, Dilthey, Clay & Bryson, L.L.P. is a firm comprised exclusively of trial lawyers who are actively engaged in the defense of civil litigation throughout North Carolina. The firm’s attorneys concentrate their practice in the defense of products liability, premises liability, extra-contractual litigation, medical malpractice, workers’ compensation, insurance coverage, automobile liability and other civil defense litigation. Article Participant: Charles George Partner cgeorge@pattersondilthey.com JULY 2007 29
Page 1 and 2: JULY 2 0 0 7 ON THE COVER An Aggres
Page 3 and 4: Martindale-Hubbell President and CE
Page 5 and 6: DISPUTE RESOLUTION METHODS Mediatio
Page 7 and 8: Offering In-House Counsel New Objec
Page 9 and 10: partnership at a glance SunTrust Ba
Page 11 and 12: FORD & HARRISON LLP Preventing an E
Page 13 and 14: DUANE MORRIS LLP Elements of Triage
Page 15 and 16: DYKEMA Establishing the Corporate D
Page 17 and 18: the Tribunal upheld the company pos
Page 19 and 20: Inside REACH The FCPA Effect Foreig
Page 21 and 22: REGULATORY RISKS ON THE RISE The el
Page 23 and 24: Walking Hand in Hand Newland Commun
Page 25 and 26: partnership at a glance measures Ne
Page 27 and 28: The Supreme Court and Climate Chang
Page 29: “Russian roulette,” allows each

View the full text of this document - Martindale.com

Create successful ePaper yourself

Delete template?

Save as template?