The Notification Process
When it comes to a Professional Indemnity claim you need to notify your Insurers of any claims or ‘circumstances’ that may give rise to a claim against you within the timescale stated within your policy.
A `claim` can normally be identified as there will usually be a clear intention for a third party to sue you. This is usually an accusation of negligence against you made in writing.
It can be more problematic to identify what is a `circumstance` that could give rise to a claim. Most Professional indemnity policy wordings require the notification of circumstances `likely to give rise to a claim` or `that may give rise to a claim` within a stated period of you first becoming aware of the matter.
Change of Insurer
If you are considering a change of Insurer at renewal, it is important to review the notification obligations of each respective policy wording carefully as there is no market‐wide approach to clauses. Wherever possible, insist that the new policy contains an `innocent non-disclosure clause`
A `circumstance` that may give rise to claim may include any of the following:
- An indication by a client, former client or other third party, whether expressed or implied, of an intention to claim against you,
- Criticism of your performance which could give rise to a financial loss,
- You becoming aware of a deficiency in the performance of your services which may result in your client feeling that you have failed to meet the standards required, even if your client is unaware of the shortcoming.
If you become aware of any of the above then you must notify Insurers within the timescale stated in your policy otherwise if the matter develops into a claim it may not be covered under the terms of your policy thereby leaving you uninsured.
We advocate that you ensure all notifications are made within 14 days of the date of discovery by you.
You should notify all issues that you become aware of, however small, and irrespective of whether you consider them to be justified or not otherwise your Insurers may be able to refuse to meet claims notified late by arguing that their position has been prejudiced.
If you are uncertain regarding whether a matter should be notified to your insurers, or what constitutes a `claim` OR `circumstance`, we strongly advocate that you contact us immediately for advice.
What needs to be provided to your insurers?
You need to provide full details of each claim or circumstance to your insurers so that they can fully evaluate each matter. This would include:
- The name of the claimant
- The nature of the potential claim and the circumstances that have led to it
- An estimate of the financial value of the claim
- The date upon which you first became aware of the circumstance that may give rise to a claim
- Confirmation of whether a formal claim has yet been made against you by the client
- Details of any investigations that you have made or propose to make
- Your opinion on whether you could be liable for the claim
- Confirmation of whether you are owed any outstanding fees
- A copy of your agreement with the client to consider any limitation of liability clauses that might apply
- Supporting documentation or evidence that relates to the claim (for example, a copy of any correspondence you have received which has alerted you to the potential for a claim to be made)
Once a claim has been noted by your insurers they will require your involvement on an on‐going basis to assist them to create the best possible defence and it will be a condition of your policy that you provide your insurers with such assistance.
This is important as you performed the work giving rise to the claim or circumstance and are best placed to support your insurers with their investigations surrounding the matter.
Your insurers will normally ask you to draft a response, for their approval prior to sending, on your own letterhead as frequently a robust denial of liability early on will prevent the matter from developing any further.
It is possible that your insurers will request that you do not to disclose to your client that you’ve notified the matter to your insurers as this can often result in the client pursuing a claim more aggressively as they regard themselves as being more likely to receive a settlement offer to avoid going to court and your insurers incurring significant defence costs.
What not to do if a Claim or Circumstance Arises
If you become aware of a claim, or you identify a state of affairs that might develop into a claim (a ‘circumstance’), it is vital that you do not do any of the following as by doing so you may affect your right to be indemnified under your policy as a result of prejudicing your insurers’ position:
- Admit liability
- Make any offer to settle the problem
- Incur any costs or expenses without your insurers’ prior approval
If you receive any correspondence from your client, or a third party, suggesting that a claim may be made against you, please do not:
- Reply – forward the correspondence to ourselves immediately so that we can discuss the appropriate response with your insurers as all replies have to be authorised by your insurers
- Take any action which might prejudice your insurers’ position or their ability to examine the problem
- Disclose details of your professional indemnity policy, your insurers, or reveal to the claimant that the problem has been reported to your insurers
If you are a professional consultant or contractor your professional indemnity insurance policy will contain a separate notification requirement in respect of any Adjudication Notice (or a Notice of the intent to enter into an adjudication process) that you receive and how quickly you must provide details to your insurers once you have received such a Notice. Your policy provides details of what you are required to do where Adjudication is concerned, as well as the timescales involved, and we strongly recommend that you familiarise yourself with such requirements to avoid you inadvertently voiding the cover provided by your policy as a result of failing to adhere to the notification requirement within your policy.