Berkley Insurance Australia has launched its “Claim Insight Series” to clarify concepts like “notifiable circumstances” and “valid notifications” under claims-made insurance policies in response to ongoing questions about claims procedures.
The release aligns with industry challenges highlighted by the Australian Financial Complaints Authority (AFCA), which recently reported a record rise in complaints, underscoring service pressures across financial and insurance sectors.
The first instalment of Berkley’s series focuses on helping policyholders and brokers distinguish between routine claims notifications and notifiable circumstances, which are events or conditions that might lead to a future claim.
Misunderstandings about this distinction can impact a policyholder’s future coverage if a claim materialises after a policy period ends.
Under section 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA), policyholders can notify their insurer of a potential claim-related situation before it develops into an actual claim. This proactive notification can preserve coverage, ensuring the insurer cannot later deny a claim based on the timing of the event, as long as the notification qualifies as “valid.”
Brokers play a critical role in assisting clients to understand and act on these notifications, as policies often outline specific notification terms. They can educate clients about these requirements and help ensure that valid notifications are submitted promptly, helping to preserve rights under claims-made policies.
Insurance policies rarely define “circumstance” explicitly, which can leave room for interpretation.
Berkley explained that case law generally describes a “circumstance” as any situation that, objectively, has a significant possibility of leading to a claim.
Common examples include client complaints, errors recognised by the client, or findings from an internal review or audit suggesting a possible issue.
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Notification obligations vary across policies, but many require notification once the policyholder becomes aware of a “notifiable circumstance.” This requires a level of actual knowledge and awareness of the potential for a claim, rather than assumptions.
Berkley said brokers can add value by helping clients interpret the policy language, identifying what constitutes a notifiable circumstance, and advising on the timing of notifications.
To protect future coverage rights, notifications need to meet the standard of “valid notification.”
Australian case law generally defines valid notification as requiring written details, specific rather than vague descriptions, and identification of actual events or incidents, based on known facts rather than hypothetical risks.
While identifying a claimant is not always necessary, insurers require enough information to evaluate potential exposure accurately. Brokers often act on behalf of their clients in facilitating these notifications, ensuring compliance with policy requirements.
Berkley’s focus on procedural clarity comes amid growing financial service complaints, as AFCA reported a record total of 105,454 complaints for the 2023-24 financial year, up by 9% from the previous year.
This increase follows a 34% jump in the prior year, indicating persistent challenges across financial sectors, including insurance.
AFCA’s chief ombudsman, David Locke, emphasised the need for financial firms to address these growing complaints by improving internal resolution processes.
Following this overview on notifiable circumstances and valid notifications, Berkley’s Insight Series will continue with Part 2, where recent legal cases that interpret these issues will be reviewed.
This forthcoming analysis aims to provide brokers and clients with a deeper understanding of claims-made policy requirements, helping them manage potential claims in line with policy language.
