Claim Advocacy for the Asset Manager: How to Preserve Your Legal Rights

Navigating the Claims Process: What Asset Managers Need to Know

E&O, D&O, Cyber, and Crime insurance are often considered severity lines of coverage. This means that while claims don’t happen often, when they do, they tend to be significant in both cost and complexity. While most investment managers encounter few claims in their career, even one can be deeply disruptive and highly stressful. In this article, we will outline what to expect from the claims process, how to avoid common pitfalls, and why partnering with your broker is critical throughout the process.

Understanding How Claims Are Paid

These policies are typically written on a “pay on behalf” basis. This means once you meet your deductible, the insurance carrier pays all covered expenses directly, up to the policy limit. Because the carrier is on the hook for costs beyond the deductible, they naturally and contractually, have legal right to be notified and actively involved in the mitigation process,

Coverage is rarely issued on a “reimbursement” basis. Meaning with “pay on behalf” you cannot hire legal counsel, offer settlements, or incur substantial costs expecting the carrier to pay you back.

When Are You Required to File a Claim?

Carriers typically use one of two trigger types to determine when a claim should be reported:

• Written Demand Trigger: The policy requires a formal demand for damages (e.g., from a lawyer or directly from a client) before you can submit a claim. This can be a letter, email, or even a documented phone call.
• Incident Trigger: More flexible, this allows you to notify the carrier of a potential issue—even if no formal demand has been made. This is especially useful for things like trade errors or other transactional issues.

Even if your policy allows for incident reporting, you should always file a claim if a formal demand for restitution is made.

How Quickly Must You Notify the Carrier?

Claims must be reported within the time frame specified in your policy:

• “As Soon as Practicable”: You must notify the carrier within a reasonable period. While broad, this still means early notice is best practice.
• Specific Time Limit: Some policies require notice within 60 to 180 days of the incident. Failing to report within the required timeframe gives the carrier grounds to deny coverage.

Claims Process Overview

1. Filing the Claim

While this may seem straightforward, knowing how and where to file is important. Many carriers have a dedicated claims email or portal. For cyber incidents, a 24-hour hotline may be available. Always involve your broker—they can help gather materials, prepare your notice, and communicate with the carrier on your behalf.

2. Claims Adjuster Assignment

Once your claim is submitted, a claims adjuster will be assigned—usually within a few days to two weeks. Their role is to gather facts, review documentation, and determine whether the policy covers the matter.

3. Coverage Determination

After reviewing the claim, the adjuster will issue a formal “Reservation of Rights” letter outlining the insurers position. This is a legal interpretation of the policy and can be challenging to read. Consult your broker who can help you decipher the position and decide on next steps.

4. Acceptance or Denial

• If Covered: The carrier may appoint legal counsel, or allow you to select counsel (with approval).
• If Denied: Work with your broker to challenge the decision if appropriate. In many cases, additional context or a closer review of policy language may reverse an initial denial.

Legal Counsel Provisions

Policies will specify how legal counsel is selected:

• Carrier-Appointed Counsel: The insurer selects the attorney and manages the defense.
• Insured-Selected Counsel: You choose your lawyer, subject to the carrier’s approval of their qualifications and rates.

Settlement Clauses to Understand

How settlements are handled can vary significantly:

• No Excess Beyond Consent: If you reject a settlement the carrier deems reasonable, they may cap their financial responsibility to the amount they could have settled for.
• Not Unreasonably Withheld: The carrier agrees not to unreasonably block or force a settlement, but “unreasonable” is subjective and often guided by legal counsel.
• Mutual Consent Required: The most favorable provision for insureds. Both parties must agree to settle, giving you the ability to continue defending even if the carrier prefers to settle.

Common Mistakes to Avoid

Avoid these missteps to ensure a smooth claims process:

Settling without approval: Unilateral settlements may prejudice the carrier’s position and are highly likely to result in denial.

Hiring legal counsel too early: Engaging counsel before the carrier’s approval can lead to unreimbursed legal costs.

Delaying notification: Especially near renewal, late notice is one of the most common reasons for claim denial.

Final Thoughts

Understanding how claims are triggered, reported, and managed is critical to avoiding coverage disputes. These are high-stakes moments—and not following the insurance contract’s procedures can generate unnecessary stress or even a full denial of coverage. Please remember, these insurance contracts are “pay on behalf”. Any dollars you spend without approval from the insurance carrier will not be covered. Your broker should be your first call—not just when buying insurance, but when it matters most: during a claim.

Golsan Scruggs is an insurance brokerage firm operating throughout the United States specializing in investment advisor E&O errors & omissions insurance (aka professional liability insurance) for RIA registered investment advisors. As one of the largest insurers of RIA firms in the U.S., we have a dedicated staff that understands the risks of the financial services industry and delivers superior results.  We make the underwriting process painless.

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