Late Notice, a Limits Demand, and a Producer Asking for a Favor
A commercial general liability policy with a $1,000,000 per-occurrence limit covers a Raleigh landscaping company. In March the insured received a demand letter alleging that a crew cut down the wrong trees and damaged an irrigation system on February 2. The insured did not forward the letter to the carrier until August. The claimant's attorney now sends the carrier a demand for the full $1,000,000 limit, good for 20 days, and refuses to extend. Preliminary review shows the loss may fall within a care, custody, or control exclusion for property in the insured's care. The insured, a longtime agency client, calls the adjuster directly and asks her to 'just tell the claimant you're denying it, that will make them go away.'
1. Set out the sequence of steps the adjuster should take on receipt of this file, and explain the role late notice plays.
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Sequence matters more than speed here.
1. Acknowledge and open. Confirm receipt in writing, and record two dates on the file: when the insured received the demand (March) and when the carrier received it (August). That gap is the notice issue.
2. Reserve rights in writing. Send the insured a reservation of rights letter that identifies the notice condition and the care, custody, or control exclusion; states that the carrier is investigating and has made no final coverage decision; confirms that the carrier will defend under the reservation if the policy provides a defense; and advises the insured that he may retain personal counsel at his own expense.
3. Investigate prejudice, not just the calendar. Late notice is not an automatic defense. The question is whether the delay impaired the carrier's ability to investigate. Document what was lost: was the irrigation system repaired and the old parts discarded, were the stumps ground out, were the crew's time records preserved, was the site regraded? If nothing material was lost, the notice defense is weak, and the file should say so.
4. Keep defense and indemnity separate. The duty to defend is broader than the duty to indemnify. A potentially covered claim triggers the defense obligation even where the exclusion may ultimately bar indemnity.
5. Escalate. Send the analysis to a supervisor or coverage counsel. Nothing in the file should read as though the delay were being used as a pretext.
2. How should the adjuster respond to the 20-day limits demand and to the insured's instruction to deny?
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The instruction cannot be followed, and the adjuster should say so politely and in writing.
Why: the carrier owes the insured a good-faith evaluation. A denial issued to make a claimant go away, with no coverage analysis and no assessment of notice prejudice, creates excess exposure for the insured and a claim against the carrier and the adjuster. The adjuster also does not decide coverage - the carrier does, usually with counsel.
Handling the demand:
- Respond in writing before the deadline, even if the answer is that the investigation continues. A timely, specific response preserves credibility.
- Do not pay the limit because a deadline exists, and do not ignore the demand because liability is disputed. A deadline is a negotiating device; missing it is not automatically bad faith, but a pattern of silence is evidence of it.
- Evaluate the merits: actual value of the trees and irrigation system, and whether the property really was in the insured's care, custody, or control at the time.
- Tell the insured in writing that the demand approaches or exceeds the limit and that personal exposure is possible. That communication protects both the insured and the carrier.
- Any payment at or near limits requires a release and informed consent from the insured where the policy requires it. Never trade away the insured's rights to close a file.
3. The producer relationship is pressuring the adjuster. What are her ethical obligations, and what should appear in the file?
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The pressure is real - a longtime agency client who refers significant business is asking the adjuster to shade the file - but the obligations do not change.
- Document the request. A file note recording who asked, when, what was asked, and what the adjuster did. A file without that note looks like the adjuster either complied or concealed the conversation.
- Keep the duty straight. The carrier's duty of good faith and fair dealing runs to the insured, and the claimant is owed fair dealing under the unfair claim settlement practices statute. A friendly producer is not a coverage opinion and not a claims authority.
- Explain the risk to the producer. A denial that is later reversed, or an excess judgment against the agency's client, damages the relationship far more than an honest coverage evaluation does. Framing it that way usually ends the conversation.
- Escalate. Coverage questions and any mention of a Department of Insurance complaint or litigation go to a supervisor or counsel. If pressure continues, report it upward in writing.
- Limit disclosure. Discuss the claim with the producer only to the extent the agency is entitled to know as producing agent; the insured is the client.
- Never alter the record. Backdating, deleting, or rewriting a note to soften the contact is a licensing violation as well as an ethics violation, and it converts a coverage dispute into an integrity dispute.