Incident Sensitivity, Part 3 (3/27/08 Knowledge Knugget)

Can an Extended Reporting Period make up for not having incident sensitivity?

When we left our hapless insured, they knew they would likely have a claim in the future, and wanted to change to a new carrier, but could not put their current carrier on notice of the circumstance due to the lack of incident sensitivity. The new carrier wouldn't pick up the circumstance because it was *known* to the insured as a circumstance that would likely result in a claim. Can the purchase of an extended reporting period allow the insured to move to the new carrier and still sleep at night?

• If the claim develops within the right time period, (within the ERP) the carrier would respond to it.
• However, many carriers offer limited ERPs. Some are as short as 90 days. One, two or three years are the usual periods offered. A handful of markets will offer 6 or 10 year ERPs.
• A detriment to purchasing the ERP is that the insured has now also limited his reporting period and coverage for all unknown previous acts that might give rise to a claim.

The take-away? Unless absolutely necessary, avoid policies that do not allow the reporting of circumstances, incidents, or wrongful acts the insured believes may arise in a claim. This reporting capability is very much needed and it is extremely hard to work around its absence and preserve needed coverage.