Insurance recovery disputes worth millions of dollars often turn on steps that seem routine. However, a flawed or delayed tender can, in worst-case scenarios, jeopardize your coverage entirely. Knowing how the law addresses this issue can help protect your business interests.
California’s Threshold for a Valid Tender
A tender is your formal written demand that an insurer accept and perform its duties under a policy. In California, however, the legal threshold is much lower than many businesses expect. Notice of a potentially covered claim generally triggers an insurer’s obligations as soon as they, or their authorized broker, receive it.
Once the insurer receives a valid notice, it must review the claim in a timely manner and respond in good faith. The state’s insurance code outlines these duties in its fair claims settlement standards.
The Cost of a Flawed or Late Notice
Errors in the tender process can produce the following negative outcomes:
- Lost defense costs paid prior to the official tender date
- Forfeited protection rights if the insurer successfully proves the late notice caused them substantial prejudice
- Shifted financial liability for losses the policy otherwise would have covered
- Weakened negotiating leverage when the timing of notice becomes a point of dispute
Given that any of these errors can result in seven- or eight-figure financial exposure, a simple gap in the process easily becomes the central dispute in coverage litigation.
Trigger Points in the Fine Print
Several types of events can activate reporting rules under your policy well before litigation takes shape, including:
- A demand letter, lawsuit or agency action directed at your company or its officers
- Third-party claims that fall within the scope of a general or professional liability policy
- Internal facts pointing to possible claims under a claims-made policy.
Many claims-made policies impose strict deadlines, and failing to meet them may void coverage no matter how strong the claim. In some cases, the window closes before you are even aware a trigger event has taken place.
A Protocol for Pre-claim Tender Management
To encourage a timely response, your notice should clearly identify the policy, explain the claim in a straightforward way and state which duty you are asking the insurer to fulfill. It can also help to have an attorney review the document so you avoid unintended admissions and make sure the notice meets the policy’s requirements.