Practical Guide for Claims Managers Thailand Part 1

Introduction

In this first guide in our monthly series on practical guidance for claims managers in Thailand, we focus on the key issues that arise when considering the notification of a claim or circumstance and set out some guiding principles. This guide should be considered within the context and wording of the policy as a whole and the requirements of the Civil and Commercial Code of Thailand.

“Claims made” policies vs. “loss occurring policies”

"Claims made" policies provide cover for claims which are initially made against the insured within the policy period, no matter when the underlying loss or wrongful act occurred (subject to any other relevant terms in the policy).

Many policies contain a double trigger for policy coverage (claims must be both first made and notified to an insurer during the policy period). Claims made policies include, for example, most professional indemnity policies and directors' and officers' liability policies.

"Loss occurring" policies, on the other hand, cover the insured for any losses first occurring within the policy period (subject to any other relevant terms in the policy). An example of a loss occurring policy is a property policy.

This guide focuses on “claims made” policies.

Notifying a “claim” or a relevant “circumstance” in a ‘claims made’ policy

It is common in third party liability policies that the insured will have cover for claims first made during the policy term as well as for ‘claims laden’ facts and circumstances which may, or are likely to, give rise to a claim at a later point in time that are notified during the policy term. 

These types of policies should provide that any subsequent claim that is sufficiently connected to those circumstances will 'attach back' to the prior notified policy (otherwise there could be a gap in policy coverage, as an insurer in a subsequent policy year is likely to exclude circumstances known to the insured or which could have been notified to a prior policy year).

Almost all policies will contain notification provisions that the insured will be required to comply with, and which may be expressed or interpreted as a 'mere' condition or a condition precedent.

Making a notification

a. What is a claim or circumstance?

Claim

What comprises a claim typically falls to the wording of the policy. The wording will usually include a definition of claim, such as litigation, regulatory proceedings, or receipt of a written demand or assertion of a right against the insured.

Should the policy remain silent on this aspect, the ordinary meaning of a claim is a demand for something as due; an assertion of a right to something.
A claim is not made until it has been communicated to the insured in accordance with the terms of the policy.

Some policies will also require express notification of receipt of formal commencement of legal or regulatory proceedings, such as a claim form, even if the substance of the proceedings has already been notified.

Circumstance

The obligation to notify will often be expressed as arising when the insured becomes aware of facts, circumstances, or an occurrence which, for example, "may" give rise to a claim, or which are "likely" to give rise to a claim.

Unlike a claim, a circumstance is often left undefined in a policy, though the terms of the policy may provide guidance as to what it would generally consider applicable circumstances.

For example, a circumstance may entail: i) a complaint from a client; ii) a realisation by a professional that a mistake has been made in relation to a particular matter; or iii) the outcome of a review or audit that identifies a systemic error.

Identifying what constitutes a circumstance that should be notified might not be straightforward. The obligation to notify a circumstance should be construed objectively while considering the actual knowledge of the insured.

As policy wordings will often set out that any circumstance that "may" or is "likely" to give rise to a claim must be notified, this raises the question as to what these terms mean in practice.

• "May" give rise to a claim – means that it is at least possible that a claim will result or, in other words, there is a real, as opposed to a fanciful, risk of a claim being presented to the insured.

• “Might reasonably be expected to” give rise to a claim – generally regarded as a higher threshold than "may", but lower than "likely".

• "Likely" to give rise to a claim – means at least a 50% chance of a claim being made.

There is no need for the insured to think the claim has merit - it is the potential for a claim to be made that needs to be assessed, rather than the potential for it to succeed. 

b. When must the notification be made?

The wording of the policy is key on the issue of timing and what will be determined as late notification. Sometimes the policy will set out the precise period for notification, such as specifying that the insured must give notice of a claim or circumstance within a set number of days of becoming aware of them. 
However, on other occasions, the policy will be less specific.

For example:

• If the notification must be "immediate", the insured is generally expected to act with all reasonable speed in the circumstances. Sometime will however typically still be allowed between receipt by the insured of the information and the subsequent notification. Each case will turn on its facts and will be subject to the discretion of the court.

• If a notification is to be made "as soon as possible" or "as soon as practicable" it is clearly a less onerous obligation than "immediately". However, it remains incumbent on an insured to make a reasonably prompt notification. 

In the absence of guidance from the policy, Thai law requires that an insured notify its insurer without delay upon knowledge of a relevant loss, claim, or circumstance. The Thai Court typically applies a fact-based approach, whereby an objective test is used to consider when there is an occurrence requiring notification. The court will assume the role of a reasonable insured and consider such factual circumstances as they affect the relevant parties.

That leads to the following questions: i) what and ii) whose knowledge starts the clock?

• First, the insured that must have the requisite knowledge.

• Second, the policy wording may expressly indicate whose knowledge is relevant, (e.g., the General Counsel or the Director within the insured’s organisation). If not, then this can be a difficult issue of attribution where a company or partnership is involved. If the Board of directors as the ‘controllers’ of the company have knowledge, then the insured will be deemed to have the requisite knowledge. It may be a more difficult question if the knowledge rests with a less senior individual. Care should be taken as to who is aware of such requirements and considered objectively.

c. What should a notification comprise of?

The express policy provisions must always be considered to assess what information the notification must contain and whether the information provided is compliant. There may be particular requirements as to the form and detail of the notification.

Absent contrary policy terms, in general terms:

• A stringent test as to the form and contents of a notification will not be applied.

• Notice can be oral - although most policies require it to be in writing (including via email).

• There is no specific person to whom notice must be given - although most policies specify a claims address.

• Blanket, block or "hornets' nest" type notifications might be acceptable – although some policies contain strict notification requirements to avoid notification of industry wide issues. However, generally, a notification can be made on a wide basis and can include, for example, facts, matters or circumstances where the insured has not fully appreciated the extent of the issue or its potential consequences.

• It is necessary to make clear to an insurer that what is intended to be notified is a blanket, block or "hornets' nest" type of notification. For such a notification to be effective, it should include any details specified in the policy and details of the acts that form the basis of circumstances, e.g., any systemic deficiencies.

• When construing the scope of the insured's notification and what their words mean, regard can only be had to the actual knowledge of the insured at the time of notification. The insured cannot be considered to have notified something of which it had no knowledge, regardless of the words used.

d. When does a subsequent claim ‘attach back’ to an earlier notified claim or circumstance?

To establish whether a claim can 'attach back' to an earlier policy year, by reason of an earlier validly notified claim or circumstance, the insurer must conduct a critical examination of the claim against the scope of that earlier notification and the required level of connection between the two. 

The policy will often specify the degree or type of connection required between the circumstance(s) or claim that were notified previously and the later claim.

For example, the policy could specify that the later claim must:

• have some sort of close causal connection to the earlier notification, for example, "arise out of" or "result from" the subject matter of the earlier notification;

• have a somewhat looser connection to the earlier notification, for example, "be based upon", or concern "the same or similar facts or matters". Even with a looser basis for connection, there must a connection that is more than purely coincidental; and/or

• be capable of being treated as a "single claim" with the earlier notification, applying the aggregation language of the prior policy.

Ultimately, whether a claim is sufficiently connected to a prior valid notified claim or circumstance is a matter of fact and subject to the consideration of the Thai court. It will therefore be important to consider how a notification has been framed and whether the degree and type of connection is satisfied.

The more specific and narrow the wording of the original notification, the less likely it is that later claims will fall within its scope. However, if the notification is focused on the ‘symptom’ of an issue, rather than the underlying cause, it may be more likely that a later claim will attach to the policy against which the notification was made.

Late Notification

Notification: Practical takeaways in Thailand

Overall, when considering a notification, here are our top tips to keep in mind:

• Consider whether the notification complies with elements (a) to (d) highlighted above.

• If it looks like the insured may have known of the claim or circumstance for some time - and perhaps prior to the commencement of the policy – consider whether the insured has breached its duty of fair presentation when entering into the policy by failing to disclose the claim or circumstance.

• Be clear about which policy year responds. For example, is the claim that has been presented under the current policy year in fact sufficiently connected to a claim or circumstance notified in a prior year such that it may 'attach back' to that year, or is it truly a new claim?

• A circumstance discovered at the very end of the policy year, but reported (within the appropriate time-frame) after policy expiry, will typically still attach to the prior policy, subject to other policy terms.

• Any kind of blanket, block or "hornets' nest" notification, or a vague high-level notification, will need particular review. Depending on the individual facts, an insurer may consider it appropriate to adopt a "wait and see" approach and reserve their rights on the validity of the notification in the meantime.

• Insurers should retain any evidence surrounding terms material to the contract, in their opinion, in order to substantiate this claim if questioned in court.

• It is important to acknowledge that failure to make a notification within the timeframe does not preclude a claim from being made unless the insurer can prove that they have been seriously prejudiced by the insured’s failure to do so.