Making a claim can be a stressful time, but understanding the overall processes, timelines and requirements on your part can significantly alleviate some of the stress. The process of making a claim will of course vary based on the type of insurance policy. Here’s what to expect when making a claim under professional indemnity (PI) insurance, and how you can work with your PI broker to minimise the stress of lodging a claim.

The intention of professional indemnity

Typically, PI is designed to provide cover in the event a client alleges your service or advice caused them some form of loss. However, this can manifest differently depending on the specific situation. In the event a client does take legal action against you or your practice/firm, PI is intended to help cover the legal costs associated with defending you, as well as compensation you might be required to pay. Not all claims are as a result of civil action; in some cases, you may be required to respond to an investigation or official complaint made to a regulatory body in relation to your insured professional service. In this case, you may require legal advice and assistance and still incur legal fees in having to respond to the regulatory body.

Notifying your broker/insurer

One of the most important features to keep in mind about PI insurance is that you are required to notify your broker or insurer of a potential claim as soon as you become aware of it. This means that if you receive a notification advising of legal action or enquiry/investigation, you are required to notify your broker as soon as practical.

In some instances, there is a limited timeframe that you may have to respond and it’s important to provide your insurer with as much time as possible to review the circumstances, speak with you, and review your file and respond accordingly.

When you notify Aon of a PI claim, typically Aon will request you email through any documentation you have received, such as a letter of demand, solicitor’s correspondence, enquiry or investigation notifications. Once the information is provided, Aon will submit this to your insurer.

Determining indemnity

Your insurance company will review the information you provided in relation to the claim. At this point, however, it’s unlikely they will have enough clarity to confirm coverage immediately under your policy. That’s why you may receive a response from your insurer requesting further information and advising they’re “reserving their rights pursuant to the terms, conditions and exclusions of the policy and at law”.

While receiving this response may be unsettling, especially if you haven’t been through this process previously, please be aware that this is standard practice to allow the insurer time to assess the details of the incident and claim.

At this stage, the insurer would also typically appoint a legal firm, who will contact you to obtain the information necessary to determine indemnity. You may be wondering what is meant by determining indemnity. Initially your insurer will be making sure the following is in order:

• The allegation/legal action has been made against the insured on the policy
• The allegation relates to services that are in scope of the profession and what was insured under the policy
• The policy is current (refer to the information below on PI, claims-made basis).

Insurance policies have terms, conditions and exclusions, so these would of course be reviewed to ensure the claim is not excluded under the policy.

Case management, resolution and settlement

Once indemnity is confirmed, the lawyer appointed will continue to assist you and manage the claim or inquiry as appropriate through to resolution. The granting of indemnity means that the legal costs that are incurred in responding to an inquiry or defending a claim are covered. This also means that if any compensation is agreed or ordered to be paid, the insurer will make those payments.

Bear in mind that you will be responsible to pay any excess applicable under your policy and if there are elements of your claim that are not covered under the policy this would be explained by either the lawyer appointed by the insurer, the insurer or Aon.

How long does it take to settle a professional indemnity claim?

Indemnity and liability claims can vary in terms of the severity, which can impact the time the claim will take to resolve; however, it’s common for these types of claims to be open for many months, in the case of an inquiry or, in some serious cases, a few years.

The importance of client records

In the event of a PI claim, your credibility as a professional is very important when it comes to providing evidence in relation to the matter/allegation in question. For example, the allegation could be completely groundless; however, if your client records are not satisfactory and you cannot prove the advice/professional services you provided or agreed to provide, then proving that the allegations are groundless can be difficult.

Although part of the reason you have insurance is to protect you from financial difficulty in the event of a claim, if your records don’t support or prove the work you did, then you could be held liable and potentially have to pay a settlement that you believe is unjust or unfair. The importance of and need for meaningful client records and terms of engagement, cannot be underestimated in the event of a claim. In fact, when these types of records have not been used it can impact the settlement figure, as well as the length of time a claim may take to be resolved – and, of course, the longer a claim is open, the legal costs can continue to mount up.

Claims-made policy

We mentioned previously that the insurance company will check the policy is current when the claim is notified. This is because typically a PI policy is a claims-made policy. This means that the policy must be active at the time a claim is made. In other words, it is not enough for the policy to have been active when the professional services were provided. It is, therefore, vitally important to have continuous PI insurance without any gaps, to protect you in the event that a complaint or claim is made about you. A current policy can include a run-off policy; it’s important to understand the claims-made basis of PI insurance and why you need run-off cover when you leave the industry or retire.

Although making a claim under PI insurance can be a stressful time, understanding the overall process can make a big difference in your ability to navigate it. It is also at this time where you may see the true value of using a broker for your insurance.

Find out more

Aon is the preferred professional indemnity CA ANZ Member Benefits partner for practitioners in Australia, click here to learn more.