LARSON’S LESSONS
NOT FOR THE FAINT OF HEART
The key to insuring nursing homes requires a high degree of expertise and a solid commitment to details.
By: Will Larson
Several years ago, I represented one of the parties in a
case where a nursing home resident choked to death while
eating a peanut butter sandwich. The resident’s family
was upset, claiming she wasn’t supposed to be eating
peanut butter since it was on her list of dietary restrictions.
The family didn’t initially make a claim or do anything
constituting a claim under the policy, e.g., send a demand
letter, request medical records, etc. The nursing supervisor
reported the death, and the family’s dissatisfaction, to the
nursing home’s insurance agent. The nursing home was
covered under a CGL and professional policy with a nonadmitted
carrier the agent had obtained through a broker.
The agent did not report the insurance company’s potential
claim when it was first reported to him.
A few months later, the nursing home’s administrator
decided to shop the coverage with another agent. The new
agent told the administrator to list all claims and potential
claims on the new policy application and report them to the
old carrier before the policy’s expiration. The administrator
did not report or list the choking death and did not tell the
new agent about it because it was reported to the former
agent, and nothing had been heard from the family since
the death. The administrator assumed the family was not
making a claim. The new agent obtained a quote from
another E&S carrier, and the administrator accepted the
quote.
Upon learning the nursing home was switching carriers, the
former agent also told the nursing home’s administrator to
report any claims or potential claims before the expiration
of the existing policy. Again, the administrator didn’t report
the choking death because the potential claim had already
been reported to the agent, and the family had not made
an actual claim. After the old policy’s expiration, the former
agent reported the choking death to the old insurer within
the old policy’s automatic-extended reporting period.
After the new policy was in place, the family made a
wrongful death claim. The new carrier denied coverage
because it occurred before the retro date, i.e., the
inception date of the new policy and because the potential
claim was not disclosed on the application. The old
carrier denied coverage because the potential claim was
not reported to the company during the policy term. The
extended reporting period in the old policy applied only
to actual claims and not potential claims. It denied the
claim because the policy required all claims to be reported
directly to the company by the insured. The nursing home
sued the former agent, former insurance carrier, and new
carrier. The suit was ultimately settled.
THE LESSONS:
1. Always report claims as soon as possible.
This is especially true with a claims made policy.
KID insurance regulation KAR 40-1-34 provides,
“Notification given to an agent of an insurer shall be
a notification to the insurer.” The legal effect of this
is to make the agent the agent of the company for
reporting claims. Failure to report a claim timely could
subject the agent to an E&O claim from the insured
and the company.
2. Always read E&S policies carefully. E&S policy
forms are not filed and approved by the KID. The
policy forms can say virtually anything. Here the policy
form provided the automatic-extended reporting
period applied only to actual claims and not to
potential claims [actually, many policies from the
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