Bus and Motor Coach Library

A Failure to Report a Minor Accident

Author – Tom Frenkel, Publication year – 2003

             When someone claims to have been injured or harmed by a transportation company, that person usually asserts that the harm resulted from the company's violation of a duty or standard of care.  Such duties and standards may arise under contracts or the law.  Once notified of the alleged harm, most companies will have their insurers "handle the claim". 

Contractual and legal duties also exist between companies and their insurers.  It is important to have a basic understanding of certain widely accepted duties, because violations can affect, or even negate, insurance coverage.  Remember that each contract must be considered on its own merit, and interpretations of insurance law vary from jurisdiction to jurisdiction.

Insurers generally have duties to defend and indemnify their insureds.  Under its "duty to defend", when a claim is made or a lawsuit is filed, the insurer must represent the interests of the insured, in its acts and by hiring legal professionals, if necessary.  The insurer will "take your side" if there is a dispute over your liability or the amount of a loss claimed against you.  For purposes of this discussion, an injury may affect a person or property.  The "duty to indemnify" refers to the insurer's obligation, under the policy, to pay for damages, which result from a covered risk.  Courts have commonly held that the duty to defend is greater than the duty to indemnify.  In practical terms that means an insurance company should defend its insured when a claim is potentially covered under a policy, while the duty to indemnify is triggered when there is actual coverage for a claim.  Generally, an insurer will not refuse to defend an insured when there is a chance that the duty to indemnify (pronounced "pay") may be invoked.

Insureds generally have duties to "cooperate" and "assist" in their defenses.  These duties are related and expansive.  The "duty to cooperate" provides, in part, that an insured entity needs to be honest with its insurer.  It must timely communicate events, which might trigger insurance coverage.  It must make any persons, property, or facilities in its control, which are related to the event, available to insurance investigators.  The "duty to assist" generally takes cooperation to a higher level.  The insured must take an active role in its defense.  That may mean spending time with investigators, reporting new findings or facts, giving testimony, or a host of other activities.  In simplest terms, an insured must be honest, communicative, forthcoming, and proactive with its insurer.

Duties to cooperate and assist are widely litigated issues.  Failure to abide these duties may invalidate insurance coverage.  For example, most policies require the insured to report events, which may lead to potential claims, within a certain time frame.  This allows insurers to investigate while the facts and circumstances are still fresh.  Witnesses and other pertinent information are more easily found.  If an unreasonable delay in reporting a potential claim adversely affects the insurer's ability to investigate or defend against that claim, then coverage may be lost.  In a practical sense, an insured risks the loss of its insurance benefit when it fails to cooperate.

You have likely thought or heard someone say: "I don't want to report this to my insurer.  It's a small loss and I don't want my rates to increase."  That decision can have serious ramifications.  Here's a rather simple hypothetical situation.  There were 42 passengers on board your intercity service, when the coach slid on an icy patch in the destination terminal.  It gently tapped a concrete abutment.  Your driver secured the vehicle and immediately asked if everyone was okay.  Voices rang out saying "No big deal."  No reports were made and there's barely a ding on the bumper.  Nearly 2 years later you are served with a passenger's lawsuit.  During the past 2 years, that passenger has racked up $30,000 in medical and diagnostic services for headaches she blames on her "bus accident".  The other passengers' names and statements were not recorded.  No investigation was performed.  Your insurer says: "There's no coverage.  Your policy requires you to notify us of any collisions within 12 months."  While the claimant might have a tough time proving the "bus accident" caused severe injuries, you must defend the lawsuit or you will lose.

In this hypothetical, the insurer has three choices if presented with the lawsuit.  It may choose to defend and indemnify your company, deny coverage, or defend you "under a reservation of rights".  In the first scenario (defend and indemnify) the insurer will pay your legal fees, assume your defense, and pay for any resulting settlement or verdict (subject to the policy), just as if you'd originally reported the incident.  In the second scenario (deny coverage) you need to respond to the lawsuit, so you will immediately assume the costs of your own defense.  You might choose to sue your insurer, as well, asserting that the insurer violated its contract with you when it denied coverage.  If the court decides in your favor, then it may require the insurer to defend and indemnify you without any policy exclusions.  In the third scenario (defend under a reservation of rights) the insurer will assume your defense even though it contests your coverage for the claim.  While defending you, the insurer will typically file a lawsuit against you and the claimant, seeking the court's judgment that you have no coverage under the policy (for failing to report a potential claim, in this hypothetical).  The claimant is a named defendant because he or she has an interest in payment from your insurance coverage.    If the insurer wins, you must defend the original lawsuit on your own.  In either of the last two scenarios, you could be paying for a lawsuit against your insurance company, in addition to the original lawsuit.

In our hypothetical, the failure to report the incident has cost you and the insurer several possible defenses. The icy patch has long since melted.  The terminal's potential liability, for failure to keep its premises safe for their intended purpose, might be lost.  It's unlikely that witnesses can be found who would testify to a patch of ice two or three years before.  The other passengers would also likely be lost as witnesses.  Even if some could be identified, they are dispersed around the country.  The bumper may have been dinged four or five more times, or may be repaired.  The driver may not be available to testify.  Evidence is lost and your defenses have been compromised - all because you didn't file a report and give the insurer a chance to investigate.  All in all, this is a bad set of circumstances.  By the way, if the insurer declines investigation, then it has taken on the risk.

If there's a lesson to take from this, it's that insurance is much like fire protection.  You pay your due while hoping you never need the protection.  When faced with day to day decisions, be sure to consider how they may affect your coverage, as well as your premiums.  You don't want to blindly compromise protection which you've already purchased for a time when you may need it the most.