Professional indemnity (PI) insurance offers important protection against claims arising from work and advice. However, to benefit fully from this cover, firms must take care to promptly notify insurers of any circumstances that could potentially lead to a claim.
As most PI policies state, policyholders are required to inform their insurer as soon as they become aware of any issue that may give rise to a claim. This includes situations like client complaints, criticism of the firm's work or internal recognition of a mistake made, even if clients are not yet aware.
Late notification of such circumstances introduces significant risk. If a firm waits until policy renewal or a change in insurer to inform them of an issue, the insurer may reject the notification as being too late. They may argue the firm failed to comply with notification requirements under the previous policy in force when the issue arose.
Insurers can also decline cover if a firm tries to resolve a circumstance independently without initial notification. By admitting liability, attempting settlement, or engaging in unauthorised correspondence with a claimant, the firm may prejudice the insurer's position. Insurers could argue they were unable to properly investigate or defend against the claim due to the firm's actions.
While some circumstances will never materialise into claims, firms should not try to make this judgment call on their own. Even if a potential claim seems likely to fall under the firm's policy excess amount, insurers still expect prompt notification of anything that could lead to a claim later on.
To avoid gaps in protection, firms should foster a culture of open communication about any emerging issues that could lead to claims. Partners, directors and employees need to understand what constitutes a 'notifiable circumstance' and bring such situations to the attention of decision makers right away.
When making notifications, firms should provide full details like correspondence, dates, involved parties and liability assessments. However, they must avoid admitting fault, attempting settlement, or disclosing insurer details to claimants. Prompt, comprehensive notification gives insurers the information they need to pick up the process, while ensuring the firm maintains its optimal coverage position.
Late notification remains a common pitfall for businesses seeking PI coverage. But by making prompt notification a clear priority and policy, firms can help position themselves for full protection in the event of a claim. The few minutes needed to contact insurers or brokers is a small investment to avoid the substantial risks of delay.