Imagine this.
You’ve agreed to complete a project for a client at a certain date. Unfortunately, you weren’t able to hold your end of the bargain as one of your contractors became ill mid-way through. Therefore, the project was delayed and was, in fact, completed two weeks after the agreed deadline.
You didn’t hear anything from your client, so you assumed everything was fine.
A week later, you receive a letter explaining that your client has raised a professional indemnity claim against you.
Do you pay the settlement? Do you call your client to discuss this? Or perhaps you should respond to the letter?
Well, doing any of the above would be a mistake. PI claims are usually complex, and the best course of action is to call your insurer immediately. That’s if you have professional indemnity insurance.
In this article, we’ll detail exactly what happens when PI claims are made against a business, so you know exactly what to do if it ever happens to you.
What does ‘claims made’ mean?
Many professional indemnity insurance policies are offered on a ‘’claims-made’’ basis as opposed to being ‘’occurrence-based’’.
This means that your business is protected from claims made against you during the policy period. More specifically, a ‘’claims-made’’ policy will only cover claims reported to the insurer during the policy period regardless of when the error, omission, or neglect occurred. This explains why it’s so critical for you to notify claims as soon as you become aware of their existence.
Let’s take a concrete example so you can better understand how claims-made policies work.
First, here’s an example of a three-year professional indemnity policy:
- Policy period 1 – 1 January 2019 to 1 January 2020
- Policy period 2 – 1 January 2020 to 1 January 2021
- Policy period 3 – 1 January 2021 to 1 January 2022
Now, let’s say the incident happened in July 2019, but the client only raised the claim against your business in February 2020. If your professional indemnity policy is on a ‘claims-made’ basis, you should notify your insurer in Policy period 2. If you lodge the incident under another policy period, your insurer can reject the claim.
Remember, for a claim to be covered, the policy must have been in place when the allegation was made against your business as well as when the claim was lodged.
With an occurrence-based policy, the PI claims would be covered regardless of when they were reported as long as the incidents happened during the policy period.
What is a circumstance?
A circumstance is an event or situation that could give rise to a claim against your business. The word circumstance doesn’t refer to the claim itself but to the event that triggered it. Circumstances that could give rise to a claim and see you protected by your professional indemnity insurance include the following:
- Alleged errors or omissions in advice or services provided, even if you disagree
- Alleged breach of professional duty
- Alleged defamation
- Loss of documents or data belonging to clients
- Infringement of intellectual property rights
Note that this isn’t an exhaustive list, just a few examples of circumstances that can lead to PI claims.
What happens when a circumstance is notified?
As soon as a circumstance arises, you should complete a notification form and send it to your insurer.
As discussed, doing so as soon as possible will help ensure the claim is covered. Your insurance company might then get back to you asking for further documentation or providing information on how best to respond to the circumstance. They could also appoint a solicitor or draft a response for you.
In most instances, you’ll be requested not to communicate with the claimant without your insurer’s approval.
Why is it important to notify a circumstance?
- Legal compliance: Notifying your insurer about a circumstance allows you to fulfill your legal obligation to report the incident to your insurance company.
- Prevent policy coverage issues: Reporting the incident to your insurer as soon as possible will help you confirm whether or not the event is covered under your policy. Note that the longer you wait, the less control your insurer has over the issue, and the more likely you are to see the claim rejected.
- Speed up claim processing: Learning a claim was raised against you for negligence or omission can be devastating and stressful. Notifying your insurer as soon as you become aware will help speed up the claims process. And this, in turn, will allow you to put this incident behind you as soon as possible and move forward.
- Lean on your insurer’s expertise: As part of your professional indemnity coverage, you have access to a team of experts available to advise you and guide you through this stressful process. So, why not notify them immediately so you can lean on their expertise and ensure the matter is solved swiftly?
Common Misconceptions regarding Professional Indemnity Claims
Maybe you didn’t have the time to report an incident to your insurer, or perhaps you forgot. But you know what they say; better to be safe than sorry! As discussed, failing to report an incident might see you left without coverage, depending on your policy.
Here are some of the most common misconceptions about professional indemnity claims:
I didn’t think there would be an issue
Reporting an incident to your insurer is as easy as calling them or filling up a form. If no claim arises after an event or situation happens with one of your clients, then your insurance company will close the file. However, if you fail to notify your insurer, and the claim progresses, you might not be covered if your policy is ‘’claims-made’’ based.
And this could see you having to fork out thousands of dollars in legal and compensation fees, if not more.
I didn’t do anything wrong
Even if you disagree with an alleged error or omission, it’s important to report the situation to your insurer so they can provide the adequate legal support you need to fight the claim. It’s in the best interest of your insurance company to try to settle rather than pursuing the fight all the way and having to pay hundreds of thousands of dollars in fees. Sharing your concerns about a specific situation with your insurer can therefore save you money and stress, as they’ll fight on your behalf to obtain the best outcome possible!
I was worried this was going to increase my premiums
This is another widely spread misconception. Notifying your insurance company about a circumstance doesn’t mean your premiums will automatically go up at renewal. And even though you have to pay higher premiums, the cost will be far less than if you had to face an uninsured claim.
Looking for the best professional indemnity cover?
As a professional, your clients expect you to maintain high standards, and one mistake could cost you everything. Professional indemnity insurance can not only help you protect your reputation, but it can also ensure you can keep operating your business without worrying about legal and potential compensation fees associated with a PI claim.
At upcover, we’re committed to the highest of standards, and that’s why we only partner with market-leading insurers that provide tailored policies with small business owners in mind.
So, don’t hesitate to jump on our instant quote generator to receive quotes and get insured within minutes. Alternatively, give us a call! We’d love to help!
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