BY BRIAN MCDONALD
WE UNDERSTAND RISK
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expertise. An integrated team of underwriting and
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to complex and evolving risks.
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Applying for liability insurance can be a time- consuming and tedious task for even the most
experienced of policyholders.
Insurance applications and related
submissions should be carefully
completed lest an inadvertent omission
result in denial of coverage later.
One potential pitfall in the process
relates to disclosure of potential claims
that might arise in the future.
For example, certain insurance
applications may ask if the policyholder
has “knowledge or information of any
act, error or omission which might
reasonably be expected to give rise to
a claim.” If yes, the application often
requests disclosure of that information
as part of the application.
Similarly, an insurer might ask
the policyholder to sign a “warranty
letter” that includes language such
as: “No Proposed Insured has
knowledge of any act, error, omission
or circumstance which would lead a
reasonable person to suspect that such
Potential Exposure might give rise to a
Claim under the Proposed Coverage,
except as detailed in the attached.”
Also, the decision to disclose certain
information may impact coverage
for future claims. If certain facts are
disclosed, the insurer might add an
endorsement to the policy expressly
excluding coverage for claims related
to the disclosed information.
On the other hand, if relevant facts
are not disclosed, and a related claim
eventually arises the insurer may argue
that the policyholder failed to disclose
material facts in applying for the policy
and therefore forfeits coverage for any
claim related to those facts.
Worse, the insurer may contend that
the failure to disclose warrants the loss
of coverage for any claim under the
policy — related to the non-disclosed
facts or not — for any policyholder
with knowledge of those facts. In light
of these perils, what’s a prospective
policyholder to do?
There are several strategies to help
minimize the risk of losing coverage.
Review all applications carefully
to understand the scope of the
information requested. Ask your
broker if they have other applications
that use more precise wording.
If the insurer requests that you sign
a warranty letter, consult with your
broker or counsel about negotiating
the specific terms of that letter.
Consider proposing more precise
language that provides a clearer
disclosure obligation (e.g., disclosure
of facts the policyholder “believes will
give rise to a claim in the future.”)
Once the language of the final
application and any warranty letter
is confirmed, consult with counsel to
identify known and unknown claims
and consider what to disclose during
the application process. &
BRIAN MCDONALD, a partner at Jones
Day, represents policyholders in major
coverage disputes and advises clients on
the design, negotiation and purchase of
insurance programs. He can be reached at