Claims Guide - Professional Indemnity Insurance

The obligation to notify claims AND potential claims (also known as ‘circumstances’) can be quite onerous. The responsibility is on the policyholder to ensure that all such matters are notified in time and in line with the claims notification clause in the policy wording. It is very important that the policy terms and conditions are fully complied with when a claim or potential claim occurs to avoid potential problems with policy coverage.

We understand that not everyone is familiar with the claims process, so this Claims Guide is designed to provide assistance. We recommend that it is circulated to Partners, Directors and Senior Managers for general awareness and risk management purposes.

When you should notify

You should notify your broker immediately if you become aware of a claim or a circumstance which may/could give rise to a claim. Notification must be made irrespective of your views on your liability or the value of the potential claim.

PI policy wordings are very strict on the time allowed in which to make a notification from the date of first awareness, so it needs to be done without delay. Failure to notify within the period specified by the policy may leave you uninsured. As a general rule, if you have to ask yourself whether a matter should be reported or not, then it probably should be.

Information you should provide

The following information should be submitted as part of your formal notification:

  • Copies of any correspondence received which may be (but not limited to) emails, letters, file notes or any legal documents such as a Writ.
  • The date of your first awareness.
  • The identity of the potential claimant and any other parties involved.
  • A brief outline of the problem and your views on liability.
  • An indication of the potential financial value of the claim.
Looking at a file

What you must not do

Once you are aware of the claim or circumstance, there are certain rules you must follow to avoid a potential breach of your policy terms and conditions:

  • DO NOT admit liability
  • DO NOT take any action which could prejudice your Insurers position or their ability to investigate the claim or circumstance.
  • DO NOT enter into correspondence with the claimant without your Insurers permission – they must approve all correspondence before it’s released.
  • DO NOT settle or offer to settle
  • DO NOT disclose your Insurers involvement or details of your PI insurance

Is it a claim or a circumstance – what’s the difference?

It’s usually quite easy to identify when someone is making a claim against you as there will normally be a clear indication from a claimant or their lawyers of their intention to claim compensation.

Identifying a ‘circumstance’ which should be notified to your insurer is not always as straightforward but is just as important. This could begin as a dispute over your fee or perhaps a complaint which doesn’t actually mention a claim.

Or perhaps you discover that part of your work may fail to meet the standard required and could cause your client a financial loss, even though they are unaware of the problem.

Whatever the circumstances, you should notify your PI insurer immediately.

Circumstances ‘likely’ or ‘that may give rise to’ a claim

Professional indemnity policy wordings will either require the notification of circumstances ‘likely’ or ‘may give rise to’ a claim. The two are very different and it’s important to understand the difference between the two.

Use of the words ‘may give rise to’ places a stronger emphasis on the obligation to notify compared to ‘likely to give rise to’. This increases the notification obligation, and generally results in more matters being lodged but can also help in identifying problems earlier.

‘Likely to give rise to’ on the other hand, is accepted as being an issue with greater than a 50% chance of giving rise to a claim. Notification of matters ‘likely’ to give rise to claim is therefore less onerous for the insured.

Prevention is better than cure

Most PI claims occur because of mistakes which are often easily avoidable. To minimise the risk of a claim and to help give yourself the best defence, you may find the following points useful:

  • Keep well-recorded file notes of all meetings and of any advice that is offered to the client.
  • Ensure that you have good diary systems to avoid any slippage on agreed time scales etc.
  • Refer to checklists as an aide memoir to ensure that relevant information has been obtained at an early stage.
  • Ensure that your Letter of Engagement is clear and precise and identifies the proposed course of action and any advice that is being given.
  • Maintain good communication with your clients and always follow up meetings and telephone discussions in writing.
  • Whilst the archiving of old files can be a problem in terms of storage costs and space, access to the file when dealing with a claim is essential when it comes to entering a defence.
  • Encourage a culture of openness in respect of potential claims or problems within the business. It is far better for managers and staff if they feel they are able to admit to a mistake. Problems left to fester will create insurance disputes if they are notified late