Professional Indemnity – Notifying a Claim
For those working in the insurance industry it’s always surprising how many clients don’t notify their insurance company when they have a dispute with a client or a threat of legal action that has been made against them in respect of the professional services they provide.
This can be for any number of reasons:
- Sometimes people don’t know at what point they are meant to notify; or
- They don’t think that it is worth notifying as they can handle it themselves; or
- They don’t want to tell their insurer because it will affect their claims history; or
- They don’t think they need to tell their insurer until it’s become serious;
- They think they are allowed to settle disputes with clients and recovery from their insurance later, once it’s all resolved.
When do I have to notify a professional indemnity claim?
A policyholder needs to let their insurance company known about a possible claim when there is a situation that reasonably expected could turn into legal action if it were not resolved prior.
This is also similar to what you need to tell your insurer at renewal. An insurance company will ask whether there have been any claims or circumstances during the year, where a circumstance means something that could be reasonably expected to turn into a legal dispute.
If a client is unhappy with the service you have provided, and you think it could lead to a dispute, which could then lead to a threat of legal action if you don’t remedy the situation, then let your insurer know about it.
Why should I have to tell my insurer?
Firstly, this is what your insurance company is here for. They are used to handling claims and therefore it makes sense to take advantage of their expertise and knowledge. They have dedicated claims teams that can help advise and determine the best course of action. Sometimes a claim can be best handled by making an offer of settlement early, or other times the complaint may be unreasonable and you have strong defence which should be pursued. They also have experience in dealing with a large number of law firms who may specialise in different areas, and therefore arrange the most appropriate legal representation.
Secondly, if you let an insurance company know after the claim has been ongoing for a while, this can impact on the amount they will pay you back. You may have handled the claim badly and have settled something you legally didn’t need to. Or you may have incurred legal fees that were not necessary as the insurance company’s claims team could have handled some of the work.
Thirdly, you should never not disclose a claim to your insurance company. One of the founding principles of insurance is disclosure of known material facts. Claims are always a material fact. If you don’t disclose a small claim to an insurer and then next year have a much larger claim, the insurance company can (in certain circumstances) cancel your policy and not have to pay your much larger claim. Therefore all the benefit of having the insurance in place at all is lost.
For all these reasons, it is usually only an advantage in notifying professional indemnity claims when you are first aware of the situation that could lead to a legal dispute.
Why you are safe with GSI direct?
GSI Direct offers you affordable protection that’s easy to arrange. Our New Zealand-based team has developed a range of policies that cover the risks faced by independent contractors, consultants, professionals and small businesses .You’re in safe hands with GSI Direct.
Disclaimer: There are other factors and policy exclusions that may influence whether a claim is covered by a policy or not. Policy coverage will solely be determined by the policy documents and policy wording, and no reliance can be placed on the content of this blog post whatsoever. The content and examples of this blog post are only given to provide a general understanding or to help explain a specific concept.