Receiving a complaint from a client is always disappointing and is unfortunately ever more common in this increasingly litigious environment especially with the involvement of claims management firms in recent years. The FCA has just made a number of changes to the Dispute Resolution Rules which you should be familiar with and it is of the utmost importance that the terms and conditions of your Professional Indemnity Insurance (PII) policy are read and adhered to when dealing with any circumstances that arise.
As IFA PII insurance brokers, we come across a number of firms who are surprisingly unfamiliar with the terms and conditions of their policy, and only find out that they do not have the appropriate claims reporting systems in place when it is too late. It is therefore essential to familiarise yourself, and all your staff, with the terms and conditions in your PII policy relating to the identification, detection and notification of any potential “circumstance”. Ensure that you review and clearly define your internal procedures as any failure to abide by your policy’s terms and conditions could potentially leave your firm exposed.
I have outlined some key points below to consider when reviewing how prepared you are to adhere to the notification terms set out in your PII policy when dealing with a potential circumstance.
What is a circumstance?
It can sometimes be difficult to establish what actually constitutes a claim or circumstance as the exact definition tends to differ from insurer to insurer and has different meanings in practice. The following may assist as a guide as to what may be deemed a circumstance but you should familiarise yourself with the exact definition within the wording of your PII policy. A circumstance can be;
- any intimation by a third party, whether expressed or implied, written or verbal, of an intention to claim against you.
- any criticism or dispute, whether expressed or implied, relating to your performance, or of any party for which you are responsible.
- any awareness by you that any services provided or actions taken by you, or by any party for which you are responsible, may have failed to meet the standard required or have led, or may lead to, a third party loss.
- a situation where you are having to investigate your work in order to justify your actions.
As a general rule, if you have to ask yourself whether a matter should be reported or not, then it probably should be, so discussing this with your broker or insurer at the earliest possible opportunity is essential.
Who should you notify?
Refer to your PII policy which should stipulate exactly who to notify the circumstance to. It can either be your broker, insurer or to an external claims handler such as a law firm. Regardless, you should always ensure that you keep your broker informed so that they are fully up to speed on any developments and able to advise you during the process.
When should you notify?
As soon as you first become aware of a claim, or circumstance which may give rise to a claim, notification to insurers should be made immediately, irrespective of:
- the amount which may be involved.
- your views or opinions on liability.
- whether you consider the claim or circumstances may be spurious or without merit.
Ensure you are aware of any notification time limits in the claims notification clause and that this is adhered to. Failure to do so could nullify and invalidate your policy cover.
What information should you provide?
In order for insurers to be fully informed as to the nature of the claim you must ensure that the following information is provided to them:
- brief details of the nature of the claim or circumstance, including name of actual or potential claimant together with your views on the claim or circumstance and any allegations made, or anticipated being made, against you.
- date of your first awareness of a claim or circumstance which might give rise to a claim.
- your estimate on the quantum which may be involved.
- copies of any correspondence or documents in which a claim is made or allegations are implied, or expressed, against you.
What about claims that fall within the applicable excess?
All claims should be reported, regardless of whether they fall within your applicable excess. Failure to do so can nullify and invalidate your policy, especially if the amount claimed subsequently increases or there are connected claims.
What are your duties in the event of a claim or circumstance?
It is important to note that if a complaint is received you should ensure that you, or a member of staff:
- do not admit liability.
- do not settle, make or promise any payment.
- do not disclose to the complainant that you have made or are intending to make a PII notification.
- do not take any action which might prejudice insurers’ position or their ability to investigate the claim or circumstance.
When dealing with a claim or circumstance, the earlier a problem is identified and brought under control, the greater the chance of minimising its impact and cost. Insurers do understand that even the best firms can have claims made against them and so it is important to demonstrate that not only do you have the right procedures and systems in place to deal with a notification when it arises, but also that you are able to take measures to address any issues in mitigating any future reoccurrence. Remember that your insurer will be very experienced at dealing with a variety of circumstances so working with them throughout the process will allow them to add valuable input into the defence of a claim.