Avoid Insurance Coverage Disputes with Incident Reporting Procedure

Suppose a tenant’s apartment is burglarized or a building visitor falls when a stairway handrail becomes loose or something happens in your building that 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 building 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 tenant trip and get hurt in the hallway. You’re also on notice when your leasing agent tells you about water damage to a vacant apartment. 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 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 tenant had sued the owner after she fell down a staircase within her apartment in 2002. The owner didn’t notify its insurer about the accident until 10 months later. The building super had discovered the tenant lying on the floor inside her apartment. In this case there was some issue as whether to the owner had some justification for assuming that the tenant’s hospitalization after her fall was attributable to a prior medical condition. Nonetheless, the super 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 tenant’s murder. And the owner wasn’t sued by the tenant’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 should establish a procedure for building employees to report mishaps.

Educate your staff about building incidents. Meet with your building 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 building 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 building incidents. See our 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 Building Incident Report to Protect Yourself from Liability, that you can adapt and use. Keep a supply of these forms at the building, and show your employees how to fill them out.

Use forms to notify insurer about possible claim. Once you receive a building 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 the insurer’s 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.