Insurance Brokers for Small Business
Auckland Insurance

When Should You “Notify” Your Insurer?

 

It is very important to let your Professional Indemnity Insurer know if a circumstance arises that may expose you to a claim.

Professional Indemnity insurance policies are “claims made” policies. This means it is the policy in place that is answerable to the claims when they are made (not the one in place when the alleged error or omission was made). For this reason, insurers need to know about the likelihood of a claim as soon as possible so the correct policy is invoked. This is a requirement of the policy, and failure to notify a potential claim can void your insurance.

If you hear of a problem involving a job you have done, you must contact your broker, who will be able to advise you on what is required. Most often you would hear of a problem directly from a client – they may contact you because something has happened that they think is your responsibility. Other times, you could hear from a contractor on a current job you are doing, who has been contacted by the owner of a property you have designed. In all these cases, you must contact your broker immediately.

For a PI policy to be triggered there must be an actual claim on you for some sort of compensation. When you notify a circumstance, this actual claim has probably not eventuated. So your insurer will generally only note the matter and await further developments. They will, however, require you to pass on any correspondence to them, and will provide guidance if responses are required. You will be told not to admit liability, and to act as “a prudent uninsured”. This means that you must not do anything to make things worse. (i.e. imagine it is you who will foot any bills for the claim).

Other obligations you have are to keep the insurer informed of all developments, and to not mention insurance wherever possible – definitely avoid saying something like “so sue me – I have insurance” or “my insurance will cover that”. Also, you must not appoint your own solicitor without clearance from your insurer. The insurer will also often request a timeline setting out what has happened (your version of events), and if the matter proceeds further they will need copies of all correspondence and contracts/terms and conditions signed etc. So it is a good idea to get the client file in order.

Usually, notifications do not affect your insurance premiums. If a claim is actually made and then paid by the insurer, they will take this into account when setting terms for a policy renewal. But until they have settled the claim, or started paying legal expenses to legal counsel, your policy premiums should remain unaffected. If the situation resolves itself, and nothing further transpires, your policy and premium should not be affected at all.

Should the matter escalate despite your best efforts and a claim for compensation is made by the client, your insurer will swing into action. From this point all the decisions will be made by the insurer, and often legal counsel will be appointed. The insurers all have a panel of legal firms with experience in various areas, so will choose one firm that has experience in this particular area to take on the claim. This firm will then work closely with you to settle the matter, or mount a defence.

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