Claims Made Bites: Claims Made vs. Claims Made and Reported

Two similar-sounding policy forms with an important difference. One leaves the door open to potential coverage while the other slams the door shut.

First, let’s walk through a realistic claim scenario where the Claims Made (CM) vs. Claims Made and Reported (CMR) distinction comes into play.

The Scenario

Susan the CEO checks her emails, then glances at the time. It’s four minutes past their scheduled meeting. She sighs and replies to another email. Bob the COO isn’t the most punctual person in the world.

As if on cue, Bob bustles into the conference room, coffee mug in one hand and laptop in the other. He abruptly sits down, spilling some coffee on the table. He gives an agitated mutter and wipes up his mess. “Sorry Susan, just getting a little bogged down here. One second, let me answer this email.”

Susan forces a smile. “It’s alright Bob, go ahead.”

Bob peers over his glasses and types out a firm response. He checks one more thing, then types some more.

“Something important?” Susan asks.

“No, it’s… it’s really stupid actually.” Bob finishes his response, hits send, then sighs. He looks up. “You remember the last floor manager, Kelly?”

“Oh yes, how could I forget?” Susan chuckles. Kelly was a hire who had interviewed well but just didn’t work out. Expectations were not met, and the company was forced to terminate her employment. Kelly was a colorful character, and her exit was just as dramatic as her short-lived career.

“But Bob, that was… what, 4, 5 months ago? Are you still dealing with her?”

“Yeah, well, now she’s saying she was wrongfully terminated.”

Susan stops cold. “Excuse me?”

“Yeah,” Bob sips his coffee and looks at his laptop. “Reagan in HR told me they received a ‘demand letter’ from some attorney, Calvin Schmidt. Don’t know, never heard of him. Anyways, we got a demand letter asking for her employment records, damages, and a bunch of stuff. I thought Reagan had sent this off…”

“Bob.” Susan tries to hide the alarm in her voice. “Bob, how long has this been going on?”

Bob fails to sense Susan’s flustered tone. “Oh, I think we got the demand letter… let me see, March… 8th?”

“March 8th?”

“Yep, March 8th. I’ve been dealing with this since then. Man, Kelly, the gift that keeps on giving, am I right?”

Susan’s flustered demeanor is less suppressed now. “Bob, that’s… 70+ days ago?”

Bob finally realizes Susan’s concern. “Susan, don’t worry about it, I can handle it. I didn’t say anything because I didn’t see any reason to bother you. Just let me handle it.”

“Bob, did you report this?”

“Report what?”

“The claim. Did you report the claim?”

“What, under our EPLI policy? I didn’t bother. Susan, look, we did everything right. The termination was by the books, we have documentation out the wazoo. We don’t have anything to worry about.”

At this point Susan ignores him and dials her insurance agent. “Hey Michael? I think we have a problem…”

We Missed the Deadline…Now What?

Imagine for a minute you’re Michael. You just got a panicked phone call from Susan advising that they have a claim that an executive officer knew about but never reported. Susan is a sophisticated enough professional to know that their EPLI coverage, which is written on some kind of claims-made basis, requires that they report the claim sooner rather than later, or else they risk complicating the coverage.

Michael finds the EPLI policy and checks. Shoot, there is a 60-day reporting window: 60 days from the time the insured first becomes aware of the claim to when they’re supposed to report it. Unfortunately, his client blew through this reporting window due to Bob’s insistence that they handle this internally.

Depending on which carrier Michael placed this insured with, this coverage is written on either a CM or a CMR basis.

If it’s CMR, that means reporting is part of the insuring agreement. If you fail to report as the policy dictates, then you’re not complying with the policy, simple as. And if that CMR policy has a 60-day reporting window, then reporting the claim on day 61, 68, or 92 will put the insured in a really bad position. The carrier has a strong argument for denying the claim, and many courts enforce it strictly.

If it’s CM, then the door to coverage isn’t shut quite as tightly. In many states, for a CM carrier to deny a late-reported claim, it would have to demonstrate that the late report prejudiced, or hurt, the carrier’s position on the claim. The carrier couldn’t just say, “The insured broke the rule, therefore no coverage.” There’s a higher bar that the CM carrier has to meet should it decide that the claim is outside of coverage due to the late reporting.

What Bob has said to the plaintiff’s attorney could determine whether the carrier was prejudiced. What if Bob had already agreed to a settlement offer, or what if he had admitted to wrongdoing before the carrier’s counsel had a chance to review the claim?

What if the insured had recently gone through a renewal? That’s a different problem entirely. If an insured sits on a known claim through a renewal and answers “no” to the prior-knowledge question on the application, the carrier may not need to prove prejudice at all. It can rescind the policy for misrepresentation (Hartford v. BKM Enterprises, Cal. Ct. App. 2004).

None of these situations are ideal, and reporting claims late is a terrible situation under both CM and CMR policies. But the main takeaway here is this: CM isn’t designed to deny late-reported claims, while CMR is. That’s why reporting is part of the CMR’s insuring agreement.

So You’re Saying There’s a Chance?

Susan picks up the phone. “Mike? Talk to me.”

“Good news,” says Mike. “Your EPLI is written on a CM basis. However, we did miss the reporting window, so we’ll want to get this over to the claims team as soon as possible. If you haven’t already, please send the demand letter to the claims team. Our office is happy to send it for you if you can forward it to me.”

Susan breathes a little easier. “We’re not going to get penalized for missing the reporting deadline?”

“I can’t make any promises without the claims adjuster reviewing everything, but here’s what I can tell you: the renewal was in January, and it sounds like the claim was made in March. We haven’t gone through a renewal while the claim was active, which is good. But we need to get this claim information to them straight away. No more waiting.”

“Oh, don’t worry.” Susan glares over at Bob, who is nervously typing the email to claims. “There won’t be another moment of delay, I can assure you.”

Do Insureds Appreciate CM vs. CMR?

Nobody plans on missing reporting deadlines. Even someone like Susan who knows and appreciates the importance of reporting claims can miss a deadline in blissful ignorance. And with CMR policies, there isn’t any wiggle room. The reporting aspect of the policy is right there inside the insuring agreement. You agree to report in a timely manner when you purchase a CMR policy.

It’s worth highlighting that CM is NOT a license to report whenever you want. CM policies have similar reporting requirements to CMR policies. But with reporting in the Conditions section instead of the insuring agreement, the CM carrier has to go far beyond, “Your tardy reporting precludes coverage.”

Brokers, stand out as an insurance adviser and highlight CM vs. CMR differences. And CM underwriters should know and defend the benefits of a CM policy over a CMR one.

Meet the Author

Lucas Roberts

Management Liability Broker, Burns & Wilcox