So you've taken the plunge and bought professional indemnity insurance. Good job. It makes perfect sense to protect your business. And with any luck, you'll never even need to make a professional indemnity claim.
But what if you do? What if something goes wrong and you need the back-up your policy provides? Are you sure whatever's happened is covered? How do you even go about making a claim? And who should you call?
It makes no sense to pay for all that help and protection only to miss out on it at a crucial time. So you need to be familiar with the what, when, and who of a professional indemnity claim - just in case. Especially since they tend to be rather more complicated than claims for, say, a lost laptop.
Luckily, we're here to help.
What's the best timing for a professional indemnity claim?
Timing is a big factor for claims. We always advise getting in touch with your broker or insurer the moment you think something’s not quite right. Your broker is the best bet if you have one.
Flagging up potential problems as early as possible is important for two reasons:
- Your insurer is an expert. Getting their claims team involved early can often prevent a sticky situation getting out of control. They’ll know what to do (and what not to do), and when to do it. They’ll also be able to judge if they can settle the matter without rolling out the legal big guns.
- If you’ve read your policy wording (you have, haven’t you?) you’ll know you're obliged to notify the insurer promptly in the event of a claim.
Late notification is a common reason for insurers to 'repudiate' (reject) claims. The longer things go on without their involvement, the more their position is prejudiced – and the less they’ll be willing or able to help. They're well within their rights to take this position, so don’t delay.
I definitely have a claim. Or do I?
So that’s timing sorted. But how do you know if you should even get in touch in the first place? How do you know the difference between a simple gripe and something more serious? Where do you draw the line?
More often than not, if a client is grumbling about your work, you’ll be looking at a relatively straightforward ‘circumstance that may give rise to a claim’.
Simple mistakes you can fix are often just that and don’t go any further. It’s unlikely a client will hit you with a ‘I’ll see you in court’ letter without giving you the chance to right the wrong first.
However, some won’t be so reasonable and it pays to be cautious. You should call your broker as soon as you’re aware of:
- Any shortcoming in your work that’s likely to lead to a claim against you; especially one that you’re aware of but your client isn’t (yet).
- Any criticism of your work, even if you consider it unjustified. It could still lead to a claim.
- Any threat of a claim against you, even one seemingly made in passing.
- Any persistent complaint about your work.
- Any refusal by a client to pay you for your work. Be wary of clients that delay payments – it could be because they’re not happy with your work.
- Any suspicion you might have that a partner, employee, director or self-employed freelancer may have acted dishonestly (because professional indemnity isn’t just for your mistakes).
That's the logistics of making a professional indemnity claim taken care of, then. But there are some things you need to avoid doing, too.
What NOT to do when making a professional indemnity claim
Just as important as knowing what to do when making a claim, is knowing what not to do. That's because certain actions can reduce your chances of a claim being successful. Without your insurer's expertise, you run the risk of making things worse.
So, for starters:
- Don't admit liability – this prejudices your insurer's position and, obviously, makes it more difficult to fight your corner.
- Don't try to settle the claim yourself – you need your insurer's permission before paying your claimant anything. Besides which, why spend your own money?
- Don't tell the person claiming against you that you have insurance (if they don't already know) – finding out you have the financial muscle of an insurer behind you can mean a couple more zeros get added to their alleged costs.
Another major no-no is doing the first thing you can think of to help yourself in the face of a claim. Like calling your solicitor.
Although that might seem like a sensible thing to do, it can end up invalidating your insurance. Granted, your policy wording doesn't explicitly say it's a breach of your obligations, but it can compromise your insurer's position and ultimately leave you without cover.
Reasons your solicitor can't help with the claims process
If there's a claim against you and you need someone to fight your corner, all legal representatives need to be approved and agreed by your insurer first.
If you've worked with a particular solicitor before and you'd like them to handle your claim, you can put this request to your broker (who'll put it to your insurer). Be warned though: it'll only be approved if it's appropriate and beneficial to your claim.
The bottom line is that your insurer has their own legal team, and they prefer to use them for a number of reasons:
Cost. Outside legal firms are an unknown and potentially very expensive quantity. Claims can rumble on for months, even years, and your insurer isn't going to be happy shelling out for a specialist solicitor, with specialist fees, when your claim doesn't need one. Using their in-house team keeps costs down.
Knowledge. Your local solicitor might be great at helping you move house but could they fight a negligence claim against you? Litigation is specialist, complicated and time-consuming. Your insurer's legal team know your business, and your policy wording, inside out. Their experience is invaluable.
Expertise. Different solicitors have different specialisms – you could end up hiring one who's not well-suited to your claim. In fact, they could do more harm than good. If your solicitor gets something wrong and promises something your insurer can't (or won't ) deliver, you're the one who suffers. Insurers don't like surprises and they're not obliged to pay your claim or your legal costs if their position has been prejudiced.
Usually, we try to avoid using cliches if we can help it. Particularly tired old insurance industry favourites like 'better safe than sorry’.
But on this occasion, we're going to because it's rather apt. Despite what you might think, insurers are happy to help and actually don’t mind paying claims (it makes them look good).
But it's a two-way street, and if you fail to keep your side of the bargain, your insurer has no obligation to pay your claim
That’s why, if you think you have an issue, a quick call to your broker to talk it through makes sense. You won’t be putting anyone out and, if no further action is needed, there’s no cost or penalty to you.
Better safe than sorry indeed.
There's more about professional indemnity insurance here or you can call the team on 0345 222 5391.
Image used under license from Shutterstock.claimsinsurance brokersinsurance explainedmanaging risk