Act Now: Insurance policies and the duty to notify.

• Author: Oikawa, Evan

Insurance policies require insureds to notify the insurer of claims and potential claims.

Insurance policies, like any other contract, contain certain legal obligations. For example, insurance policies of all types require insureds to notify the insurer of loss or damage--or in the case of liability insurance, claims or potential claims. This duty typically flows from the insurance policy itself. Sometimes, the duty may arise from "statutory conditions" in legislation that, by law, form part of the insurance contract.

The duty to notify allows insurers to assess liability and lessen any loss. If the insurer does not receive proper notice, they may deny coverage. This could result in the insured having to defend a lawsuit and potentially pay a court judgment without any help from the insurer. Unfortunately, it is not always clear when the insurer has received notice, particularly in liability claims.

Liability claims

Two types of liability insurance policies exist. Previously, insurance companies issued "occurrence" policies. Under these policies, if the insured acted carelessly during the policy period, they would be covered for any claims arising from the carelessness, even if the claim occurred after the policy period. But this type of policy caused problems for insurers, because they would not know for many years how many claims had occurred in a given year. This made it difficult to set premiums.

So, insurers began issuing "claims made" policies. Under these policies, the insurer covers claims made during the policy period and any claims made later, provided the insured gives notice of the potential claim during the policy period. With these policies, insurers can learn the number of claims and pending claims in a given year and set premiums for the following year accordingly.

Whether an insured has complied with the notice requirement depends on the specific facts of the case. Trisura Guarantee Insurance Company of Canada v Duncan shows how a court may decide this issue. The facts are as follows.

Keybase, an investment organization, dismissed one of its advisors, John Allen, for negligent and fraudulent handling of client accounts. Gregory Duncan and James White, two other advisors, assumed responsibility for Allen's clients.

A few years later, various Allen clients sued Keybase. Keybase settled the case, but expressly agreed its advisors would not be released by the settlement. Later, the clients sued Duncan and White, alleging they...