Insurance policies are designed to provide financial protection and support in times of need. However, many policyholders inadvertently compromise their coverage by delaying claim notifications or appointing legal representation without insurer approval. These issues can have serious financial and legal consequences, leading to disputes over coverage and unexpected out-of-pocket expenses.
Delays in Claim Notification: A Costly Mistake
One of the most common and problematic issues in insurance claims is the failure to notify the insurer in a timely manner. Most policies contain strict conditions requiring prompt notification of any potential claim or circumstance that might give rise to a claim. Failure to do so can result in:
1. Denial of Coverage: Insurers may reject a claim if the delay has harmed their ability to investigate, negotiate, or settle the matter effectively.
2. Increased Legal Costs: A delayed notification can escalate a minor issue into a significant dispute, increasing the costs of resolution.
3. Breach of Policy Conditions: Many policies include clauses that require immediate or reasonable notification. Breaching these conditions can result in lower compensation or complete denial of coverage.
4. Difficulty in Gathering Evidence: The longer the delay, the harder it becomes to obtain witness statements, documentation, or other critical evidence needed to support the claim.
Timely notification ensures that insurers can assess the situation quickly, provide appropriate support, and mitigate potential losses.
Did You Know
Delaying the notification of an insurance claim by even a few weeks can significantly impact the insurer’s ability to investigate and assess liability, potentially leading to a reduced payout or complete denial of the claim.
Appointing Legal Representation Without Insurer Approval
Another frequent issue arises when policyholders engage legal representation without first seeking insurer approval, expecting that all legal costs will be reimbursed. Many policies, particularly in professional indemnity, liability, and management liability insurance, contain provisions specifying that legal representation must be approved by the insurer beforehand. Ignoring this requirement can result in:
1. Non-Reimbursable Legal Expenses: Insurers may refuse to cover legal costs if the appointed lawyers were not pre-approved or if the fees are considered excessive.
2. Loss of Control Over Defence Strategy: Insurers have dedicated legal panels experienced in handling claims efficiently. Appointing external lawyers may lead to unaligned in defence strategies.
3. Duplication of Costs: If the insurer later appoints their own preferred lawyers, the policyholder could end up paying for two sets of legal fees.
4. Coverage Disputes: If an external lawyer provides advice that contradicts the policy terms, it could lead to complications in claim settlement.
Before hiring a lawyer, policyholders should always check with their broker to see if they have a policy that covers their situation. Many clients are unaware that they may already have coverage for issues such as unfair dismissal or employee disputes. By confirming with a broker first, policyholders can avoid unnecessary legal costs and ensure they receive the protection their policy offers.
Similarly, policyholders without a broker should consult their insurer before engaging legal counsel and adhere to the policy’s terms regarding legal representation.
Best Practices to Avoid These Issues
1. Review Policy Terms Regularly: Understanding the notification requirements and conditions around legal representation can help avoid missteps.
2. Notify Insurers Early: Even if the claim seems minor, early notification allows insurers to assess the risk and provide guidance.
3. Seek Insurer Approval Before Engaging Legal Counsel: This ensures that costs are covered, and the defence strategy aligns with the insurer’s approach.
4. Work With an Insurance Broker: Brokers (like Midland Insurance Brokers) can provide guidance on claim procedures, ensuring compliance with policy conditions and advocating for the policyholder in discussions with the insurer.
The Takeaway
Delays in claim notification and unauthorised legal representation can jeopardise an insurance claim, resulting in denied coverage and unexpected financial burdens. It’s important that policyholders take a proactive approach, adhering to their policy’s requirements and working closely with their insurer or broker to ensure a smooth claims process. By understanding these key issues, businesses and individuals can maximise their insurance protection and avoid costly mistakes.
If you have any questions about making a claim, or what's covered in your insurance policy, reach out to us at Midland. Our brokers are always happy to help.
Written By Seam Ung
Senior Claims Officer
Seam has 14 years of experience handling claims for Australian small businesses, specialising in property and liability insurance.
