Notice-of-Circumstances Provisions in Claims-Made Policies

Generally, D&O, bankers' liability, and other claims-made insurance covers the liability of professionals to third parties only for claims that are both made (against the insured) and reported (to the insurer) in the same policy period. A limited exception to this rule, however, is carved out by notice-of-circumstances clauses typically found in claims-made policies. These clauses enable policyholders to obtain coverage for claims made against them after the policy's expiration but only if, before the policy period ends, they notify the insurer in writing of specific facts and circumstances they reasonably expect to lead, after the expiration of the insurance, to a claim against them. As to subsequently-made claims which actually do arise from the circumstances of which the insured notified the insurer, notice-of-circumstances provisions essentially enable insureds to keep any policy limit remaining on their expiring coverage in place during the succeeding policy period. Clearly, in the wake of the subprime crisis, policyholders with subprime exposures may seek to give notice of circumstances regarding their activities that may give rise to claims.