Whether you are sued or receive a threatening or demanding letter criticizing your work, it’s hard not to take it personally. While the natural reaction is to immediately respond in one way or another, what you really need to do is take a deep breath, step back and evaluate the situation objectively.
Your personal feelings notwithstanding, there is certain protocol you should follow to correctly respond to a claim. You need to make sure the right people are notified, the best defense is assembled and that your professional interests are protected. You also need to make certain not to do the wrong things.
The following is basic protocol to ensure you don’t undermine your case:
- Don't overreact. No matter how you’re notified of a claim—whether it’s an owner’s phone call, an attorney’s letter or legal process papers served by a court officer—your job is to remain calm and not overreact. Recognize that you won’t be able to settle the problem right on the spot and any reactive comments will likely come back to hurt you.
- Don't admit fault. Often, if we think we did do something wrong, we are inclined to admit this up front and promise to take care of it. This is the last thing you want to do. You can kill your case from the start by admitting you are wrong. You may not be.
- Don't make any statements until conferring with your insurers and/or attorney. This follows closely on number two. Making what seems like an innocuous statement (e.g., “I was wondering when I’d hear about this”) to the other party becomes part of the record and later could be interpreted as an admission of liability. Prior to consulting with those in the business of protecting you, the less you say to anyone about the claim, the better.
- Don't wait to contact your agent/broker or insurer. The earlier you notify your broker or your insurance company, the sooner they can help you. Unlike a first-growth Bordeaux, claims never get better with age. Most likely, your insurer will immediately begin investigating the potential liability involved and deciding the best course of action to take to defend you; e.g., retaining an expert to evaluate the claim. The last thing you want to do is to take the “ostrich” approach and hope the matter goes away. The worst case is if you turn the claim in late and your lack of timeliness adversely affects the insurance company’s ability to defend the matter and they deny the claim.
- Understand your contractual obligations under your insurance policy. You must notify the insurance company as soon as practicable (a term which isn’t defined). You must record specifics of the claim. You must immediately send them copies of demands, legal papers, etc. and cooperate with the insurance company (immediately is not defined). Finally, you agree not to voluntarily make a payment, assume any obligation or incur any expense. Note that violation of this provision can jeopardize your coverage.
- Don't wait to compile documentation. Getting started right away means you’ll be able to quickly pass your records and documentation on to those defending your interests. It’s also a requirement under your insurance coverage.
- Don't under any circumstances destroy documents related to the matter in question. As soon as you have any inkling there’s a dispute or circumstance that might give rise to a claim, even if you don’t appear to be involved, you should preserve all your records and documentation. If your firm has a policy of routinely destroying documents after a certain period of time, you’ll also want to circulate a “litigation hold” memo within the firm. The memo should go out to your staff as soon as you learn about the possibility of litigation—don’t wait until you’ve been served with a summons and complaint. Documents that are seemingly randomly destroyed will not play well in court.
- Don't sign or accept releases from anyone. In fact, you shouldn’t sign any document related to a claim unless advised to do so by your attorney or your insurance company. Otherwise, you could end up releasing the party actually responsible for a problem from any liability, leaving you as the sole defendant. You may also be presented with only an incomplete release, exposing you to liability for additional components of the claim.
- Don't agree to make any payments or provide any services. Most people have a natural inclination to try and solve problems. While this is admirable, agreeing to make payments or perform services to resolve the problem will be considered an admission of fault. Don’t agree to provide a service or make a payment, even if it falls entirely within your deductible, without the advice and consent of your insurer. You can’t spend the insurance company’s money without their consent and if you prejudice the case without their consent, an insurance company can deny coverage. By acting unilaterally, you could jeopardize your insurance coverage.
- Be wary of providing free advice or counsel to resolve a problem. This falls under the “no good deed goes unpunished” doctrine. When in fact you are trying to help others, you might actually be hurting your case.
Best practices correctly responding to claims and circumstances that might give rise to a claim are critical to the risk management process. You should educate your staff on how to proactively identify problem situations and to respond to those situations. The way a claim is managed will have a material effect on what ultimately is paid out on that claim.