Question 1

What is a warranty statement on an insurance application?

Accepted Answer

A warranty statement is a formal declaration where the applicant confirms they are not aware of any facts, circumstances, or situations that could reasonably give rise to a claim under the coverage being applied for. Once signed, it becomes part of the policy and is used by insurers to determine coverage eligibility.

Question 2

Do I need to disclose minor employee complaints on a warranty statement?

Accepted Answer

Yes. Warranty statements are interpreted very broadly. Even minor employee complaints, disgruntled workers, or informal HR issues should be disclosed if they could reasonably lead to a claim. The test is whether a reasonable person would foresee potential litigation, not whether you personally think it's serious.

Question 3

What happens if I disclose a situation on my warranty statement?

Accepted Answer

Typically, the insurer will ask for more details and continue offering coverage. However, the disclosed matter will usually be excluded from your new policy through a specific endorsement. The rest of your coverage remains intact, protecting you from unknown future claims.

Question 4

Can a warranty statement void my entire D&O or EPLI policy?

Accepted Answer

Yes. If the insurer discovers you failed to disclose material information during the application process, they may deny coverage for related claims or, in severe cases, rescind the entire policy. This leaves you personally liable for defense costs and damages.

Question 5

When should I not sign a warranty statement?

Accepted Answer

You should not sign a new warranty statement at routine policy renewals when coverage has been continuous. Fresh warranties at renewal can compromise your coverage continuity. Only sign warranty statements when first applying for coverage, when there's been a coverage break, or when significantly increasing limits.

Question 6

How far back does the warranty statement reach?

Accepted Answer

The warranty statement typically applies from your policy's retroactive date or continuity date forward. If you've maintained continuous coverage for 10 years, that's your lookback period for assessing what knowledge you have about potential claims.

Question 7

What is the "burning barn" analogy in insurance?

Accepted Answer

The "burning barn" analogy means insurers won't cover a loss that's already occurring or highly likely to occur. Just as a property insurer won't insure a building that's already on fire, liability insurers use warranty statements to avoid covering claims that are already developing when you apply.

Question 8

Should I consult a lawyer before signing a warranty statement?

Accepted Answer

For complex situations or if you're aware of potential claims, consulting with insurance coverage counsel is advisable. They can help you frame disclosures properly, negotiate warranty language, and ensure you're protected under attorney-client privilege when discussing sensitive matters.

Question 9

What's the difference between subjective and objective warranty language?

Accepted Answer

Subjective warranty language asks what you personally know or are aware of. Objective language asks what a reasonable person should know or could foresee. Courts have ruled that under agency principles, knowledge of your attorneys and key executives can be imputed to the company, even if the CEO personally didn't know.

Question 10

How do warranty statements affect my coverage when changing insurers?

Accepted Answer

When switching insurers, the new carrier should honor your prior policy's continuity date if coverage has been continuous. However, they will require a warranty statement for the new coverage period. Ensuring the new carrier acknowledges your historical continuity date is critical for maintaining full prior acts coverage.

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