Risk Management — The pitfalls of late reporting
04/06/2012

Making a claim the moment it happens can make a difference

When an accident occurs, it is of the utmost importance that you notify your insurance carrier as soon as possible. Most importantly, you should let your carrier fulfill its promise to you, which is to get you back where you were before that storm hit, before the other guy ran a stop sign or before a piece of equipment came back destroyed.

It’s good practice to report all claims promptly, but it’s especially important in injury accidents, which are the most costly — for the insured as well as the insurance company. There are two main reasons for promptly reporting any type of situation that could potentially become a claim:

  • It allows for the best possible defense.
  • It will cost significantly less than a claim the insurer is not made aware of until long after the accident has occurred.

The sooner an accident is reported, the sooner an investigation can begin. Equipment can be inspected to document its condition at the time the accident occurred. Documentation such as your rental contract, accident reports and maintenance records are readily available. Memories for the involved parties and witnesses are fresh, and employees still work for you.

When accidents are reported months or years after they happen, allegations about the rental store’s liability are difficult to contradict. The involved equipment may have been rented multiple times and maintenance records could be lost or destroyed. The people involved may have forgotten important details and employees may have moved on to other jobs.

Late reports of claims also drive up costs. Injured parties obtain legal representation and statistics show that people who have legal representation in insurance claims are paid six times more than those without. That’s because they often file suit, which means attorneys must be hired to defend you. In addition, the need to track down documentation, witnesses and employees increases expenses. A lack of information means fewer defenses and therefore higher settlements. Higher claim costs could mean higher insurance premiums in your future.

Another reason for promptly filing claims is your contractual obligation to do so. Under the insurance policy contract, the insurer has an obligation to defend the insured against claims or suits and pay those sums for which the insured is legally liable.

However, the insured also has an obligation under the policy to report claims as soon as possible, so the insurer has ample opportunity to investigate and defend. If an insured fails to comply with that obligation, the insurance company can deny coverage and refuse to defend or indemnify the insured for the late-reported claim. Those occurrences are rare and limited to cases in which the delay in reporting grossly compromises the insurer’s ability to investigate. As a result, you would have to fund your own defense or pay damages out of pocket.

To illustrate the advantages of promptly reporting claims, consider two similar accidents involving rented forklifts.

One operator had a load on the forks, which were elevated several feet as he backed down an aisle and through a doorway. The mast struck the overhead door jamb and the operator was thrown out of the driver’s compartment. He suffered severe injuries including broken ribs, a punctured lung and a rotator cuff tear.

When his employer returned the forklift to the rental company, he mentioned the accident and commented that the operator was driving in an unsafe manner. The rental company did not report the incident to its insurer until two years later when the injured man filed suit alleging faulty controls.

In the other forklift accident, the operator was driving forward too fast with his load obstructing his view. He misjudged a turn and the forklift struck the corner of a wall. He, too, was thrown from the driver’s compartment and suffered severe internal injuries. This time the rental company reported the accident the next day, so the investigation was well under way by the time the injured man filed suit, also alleging defective controls.

Both claim investigations confirmed that defective controls contributed to the accidents, so the suits were settled out of court. Despite similar equipment, similar circumstances and similar injuries, the first accident cost more than double that of the second; its expenses alone topped $200,000.

Protect yourself by reporting all accidents to your insurance company as soon as you know about them. It allows your carrier to fulfill its obligation, affords you the strongest defense and saves you both considerably.