How to Deal with a Professional Indemnity Claim
Dealing with a professional indemnity claim can be a complicated and stressful problem for business owners. When a client complains or threatens legal action, it’s important to approach the situation calmly and with the right steps in place.
Correct insurance is a crucial part of navigating professional indemnity claims. However, it can be difficult for professionals to stay within the complex rules of the insurance claims process.
Properly understanding the claims process can help you to defend your business against any present or future claims.
What is Professional Indemnity Insurance?
Professional Indemnity (PI) insurance is a type of cover which can protect a business, its partners and its employees from claims made against them for negligence in their work, such as providing advice which led to a poor client outcome.
PI cover is an important protection for professionals who provide advisory services to members of the public and is often a prerequisite for obtaining an operating licence or membership in an industry organisation.
PI insurance can protect against claims of negligence, violation of contracts and provision of inaccurate advice. It can cover the cost of settlements, court fees, investigation costs and legal costs. The details and coverage will vary depending on the type of insurer, arranged policy and local laws.
Risks of a Professional Indemnity Claim
Businesses that operate on a larger scaleare more likely to be at risk of receiving a claim, however smaller businesses and certain professions may still be targeted.
Although your business may provide an exceptional level of service, the risk of one of your staff members being accused of a misdemeanor is always a possibility.
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Damages incurred from legal fees, settlement costs and loss of time can lead to a poor financial outcome for your business, regardless of whether the case is won or lost.
Adding to initial costs, the long-term costs of damage to your reputation can be an even larger issue and may lead to a significant loss of business due to negative public perception.
Protecting against these risks with the correct insurance can ensure that your business and its employees are able to provide their services without fear of liability.
What to Do When Facing a Professional Indemnity Claim
If your business is the subject of a liability claim, it’s important that you notify your insurer as soon as possible.
Professional indemnity cover is typically provided under a ‘claims made and notified basis’. This means that to be covered, you must be actively insured in the period that you receive a claim as well as when you notify your insurer of that claim.
To ensure cover, you must notify your insurer of any circumstances which could lead towards a claim being lodged, even if the client themselves are not aware of them, including:
- Any mistakes, oversights or omissions in your work or that of your partners or employees
- A client refusing to pay for work that they are unhappy with
- You are accused of failing to provide a satisfactory service as promised or advertised
- A complaint is made about you to your industry body or licensing board
- Any other indications that a client will make a claim against you in future
Notifying your insurer of these circumstances as soon as possible can help to ensure you are well covered in the event of a claim.
Additionally, failing to disclose past events which could lead to a claim being made in future can also lead to cancellation of your cover and a denial of your claims.
Best Practice During the Claim Process
When your claim is being investigated and processed, it’s important to follow some appropriate safeguards. These include:
- Ensuring each of your legal business entities are properly noted as insured in your policy
- Disclosing all past circumstances which could eventually lead to a claim
- Notifying your insurer immediately of current circumstances which could lead to a claim
- Never admitting liability to a client, even if you are at fault
- Allowing your insurer to resolve complaints for you
- Not offering or negotiating terms of a settlement without your insurers knowledge
Keeping your insurer informed and involved in your situation is always best, as they will often have a team of experts, including lawyers and investigators, ready to help.
While the claims process can be difficult to manage alone, having appropriate insurance can protect your business and keep your reputation intact. An experienced insurance broker can help to develop an insurance plan that is tailored to your needs and manage the often complex claims process.
Maintaining best practice for your business and supporting it with the appropriate insurance can help you to avoid the risk of costly claims.
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