In practice, professional indemnity insurance claims are some of the most difficult and complex general insurance claims that can arise. This can be caused by a number of factors including the general nature of the insurance of professional services, business factors such as issues of reputation that face clients the policies claims notifications procedures and the settlement basis under professional indemnity insurance policies.
Claims in respect of the provision of professional services.
The professional indemnity insurance policy is designed to protect the policyholder against claims made against them in respect of their legal liability for loss suffered by third parties as a result of a breach of professional duty by the insured. Whilst this is may on the face of it appear to be fairly straightforward, it is not always the case. for example the insured’s client may suffer a financial loss as a result of what turns out to be “bad advice” by the insured, however was the advice “bad” at the time it was given or did the insured execute their duties at the time with an appropriate and reasonable level of skill and care? In view of the wide range of professions covered by professional indemnity insurance policy and the ever changing nature of the law and the world in which we live, what appears to be sound advice now may be incorrect tomorrow.
In addition to this, many policyholders will enjoy an ongoing relationship with their clients and provide professional services on an continuing basis and the actual point in time where “bad advice” was given maybe difficult to identify. Breaches in professional duty are not always as easy to identify as claims liability arising under policies such as one driver crashing into the rear end of another under a motor insurance policy.
Business reputation and professional indemnity insurance claims.
Most professionals pride themselves on their reputation and will work hard to protect this from damage. In many cases if a problem is identified between the parties then the professional will work to fix this problem in order to preserve their reputation and their ongoing business relationship with the client. Whilst this approach appears to be perfectly reasonable, it can create problems with any potential claim that may arise either at the time or later as a a result of the fairly onerous notification conditions and the way in which claims are met under professional indemnity insurance policies.
When do I need to notify an insurance company about a claim under a professional indemnity insurance policy?
The notification conditions under professional indemnity insurance policies are more onerous than perhaps those found under other classes of general insurance policy insofar as the the insured is required under the terms of the policy to notify the insurance company not only of any clam that is being made against them but of any circumstances that may give rise to a claim under the policy. It is the requirement to disclose these “circumstances” that can cause difficulties for policyholders when, as suggested before, they try to maintain client relationships and reputation by resolving any issues that may occur.
What does the claim notification condition under a professional indemnity insurance policy say?
The wordings of the notification condition by insurers varies from provider to provider, but they are generally very similar and will contain reference not only to the requirement to notify claims and circumstances but also to inform the policyholder that there must be no admission of liability to their client in respect of any claim or potential claim. This again can provide the client with problems in handling their reputation and relationship with their client.
As conditions precedent to their right to be indemnified under this Policy the Insured
1.1 shall inform the Insurer as soon as possible, and in any event within 28 days (provided always that such notification is received by the Insurer before the expiry of the Period of
insurance) of the receipt, awareness or discovery of:-
a) any claim made against them
b) any notice of intention to make a claim against them
c) any Circumstance
d) the discovery of reasonable cause for suspicion of dishonesty or fraud.
Such notice having been given as required in b), c) or d) above, any subsequent claim made shall be deemed to have been made during the Period of insurance;
1.2 shall not, in the event of a claim, or the discovery of information which may give rise to a claim, admit liability for or settle any claim, or incur any costs or expenses in connection therewith, without the written consent of the Insurer; and
1.3 shall, as soon as practicable given the circumstances, give all such information and assistance as the Insurer may require and provide their full co-operation in the defence or
settlement of any such claim.
Every letter of claim, writ, summons or process and all documents relating thereto and any other written notification of claim shall be forwarded, unanswered, to the Insurer
immediately they are received. The Insured shall at all times, in addition to their obligations set out above, afford such information to and co-operate with the Insurer to
allow the Insurer to be able to comply with such relevant Practice Directions and Pre- Action Protocols as may be issued and approved from time to time by the Head of Civil
How does the basis of settlement affect professional indemnity insurance claims?
Professional indemnity insurance policies are issued on a claims made basis. In brief this means that the policy responds to claims notified only during the term of the policy. There is no cover in respect of claims that were notified or circumstances that arose prior to the policy being in force and no cover for claims notified after the policy has been cancelled or lapsed, irrespective of whether the incident giving rise to the claim occurred whilst the policy is in force. This can have serious consequences for clients who do not notify their insurance company of any actions or circumstances at the correct time. More information on the claims made basis of settlement.