So you've taken the plunge and bought professional indemnity (PI) 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 backup your policy provides? Are you sure whatever's happened is covered? How do you even go about making professional indemnity claims? 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 making professional indemnity insurance claims – 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.
Understanding when to make a PI 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 an ‘I’ll see you in court’ letter without giving you the chance to right the wrong first. But how do you know the difference between a simple gripe and something more serious? Where do you draw the line?
Taking the first step in making a professional indemnity claim can feel like a huge deal. But it’s important not to put it off. Timing is everything when it comes to claims and there are certain circumstances where you’d need to act quickly.
Ask yourself these questions:
- Does PI cover my situation? PI covers accusations (justified or not) that your professional services aren’t up to par – specifically, for negligence, breach of confidentiality, dishonesty, libel, and slander. However, you should check your policy wording so you're aware of any limits to your policy.
- Is the regulator involved? You might be asked to respond to an investigation or complaint made against you to a regulatory body. If that happens, you should notify your insurer immediately.
- Am I legally required to report it? Your insurer can't cover criminal acts. And so, PI is only concerned with your civil liability. However, your insurer needs to know of any circumstances that could materially affect your cover. Including accusations of wrongdoing or breach of contract made against you – criminal or otherwise.
- Has my client lost out financially? If they have, there’s a good chance they’ll want compensation – and the surest route to getting it to file a complaint against you through their lawyer.
- Has someone acted dishonestly? Remember, PI insurance isn’t just for your mistakes. It also covers the dishonesty of any partners, employees, directors, or self-employed freelancers you work with.
How to claim against your professional indemnity insurance
The process for making a professional indemnity insurance claim always starts with you. After that, it's in the hands of your insurer.
Having your broker (assuming you have one) help with your claim means there's someone on your side at all times. They can decode any questions asked of you and argue your claim if needs be.
It's important to be open and honest with your broker at every stage. Being proactive in supplying them with any information they need will only help advance your case.
Here's the whole claims process broken down:
Notifying your insurer. This is where you first call up your broker and tell them about your situation. They'll take a few details and notify your insurer. They'll want to know what you’re being accused of and whether it’s an actual, written allegation or rumblings from an unhappy client.
The insurer’s checks. Next, your insurer checks if your cover's valid. Things that could invalidate your cover include: notifying your insurer too late (the timelines will be outlined in your policy wording), claiming for something your policy can't cover, failing to keep up with payments, or allowing your renewal to lapse.
The insurer’s investigation. Once your insurer has the go-ahead for your claim, they'll need details of the events leading up to it: the who, what, where, and why. At this point, they might ask for evidence to support your claim – emails, contracts, job specs, etc.
The negotiation. At this point, there'll likely be some back-and-forth between your insurer and your client's lawyers about settlement and what compensation you may owe. In PI claims, this process can take weeks or even months, especially if your client threatens court action. Rest assured, your broker will let you know if they need anything else from you at this stage.
The outcome. Depending on the nature of your claim and what's decided, your insurer covers your claim either wholly or partially. You might have to pay a policy excess; but if your insurer’s legal team successfully defends you, you could get through the whole professional indemnity insurance claims process without spending a penny.
What's the best timing for making professional indemnity claims?
Timing is a big factor for claims. We always advise getting in touch with your broker the moment you think something’s not quite right.
And especially if you’re aware of the following:
- 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 who delay payments – it could be because they’re not happy with your work.
Why is early notification important when making professional indemnity claims?
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’. You should report these to your insurer, as per the conditions in your policy wording.
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 should 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.
That's the logistics of what to do when 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 professional indemnity insurance claims
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, 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 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.
Here's why.
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.
Safety first
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 professional indemnity 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.
Read more on how business insurance claims work or call the team on 0345 222 5391 for help.
Image created by PolicyBee using assets from iStock and Shutterstock.
claimsinsurance brokersinsurance explained