Professional Indemnity claims: when should I notify my insurer?

Professional indemnity claims can move fast. You can protect your position by notifying early, documenting well, and following your policy’s process.

This guide explains what “notification” means and what you should notify. Here is what you need to know.

Why is notification important for Professional Indemnity insurance

Most Professional Indemnity policies are written on a claims-made basis. This means your policy must be active when the claim is made and when you notify your insurer.

The work may have occurred years earlier. Cover typically depends on when the claim is made and when it is notified to the insurer.

Late notification can complicate or even jeopardise coverage, particularly where policy conditions require prompt reporting.

Professionals sometimes hesitate to notify because they think a matter will resolve informally. That delay can create risk if the issue later escalates.

Most policies separate two types of notifications.

A Claim

Depending on your policy wording, a claim usually means a demand for compensation, a written allegation, a legal action, or formal proceedings. The exact definition varies by policy, so check your check your Product Disclosure Statement (PDS).  If a client clearly alleges that your advice or services caused them financial loss, you should review your policy definitions immediately.

A circumstance

A circumstance is different from a claim. It refers to facts or situations that could reasonably lead to a claim in the future. For example, you discover an error in a report already issued. No one has complained yet, but you know the mistake could cause loss. That may be a notifiable circumstance.

Notifying circumstances early can help to protect you if a claim arises later, even if that claim comes after renewal.

Why professionals delay notification

Small business owners often underestimate how quickly matters can escalate once lawyers become involved. Many business owners hesitate to notify for practical reasons. Some businesses hesitate to notify because they are concerned that:

• It will increase your premium.
• It will damage your claims history.
• The client relationship can still be repaired.
• The issue is too small to involve an insurer.

Professional Indemnity insurance helps cover legal defence costs and potential liability claims. Early notification allows your insurer to guide strategy before the claimant starts to take any formal action.

What to notify

If you receive a complaint or identify a potential issue, act methodically. Clear, factual notification helps your insurer assess the incidents efficiently.

First, review your policy wording. Confirm how “claim” and “circumstance” are defined.

Gather documents. Engagement letters, scopes of work, emails, reports, and file notes will be important if the matter develops.

Finally, notify in writing in accordance with your policy terms. Provide clear facts, dates, and a summary of what has occurred.

How to notify

Professional Indemnity policies set out specific notification requirements. Some insurers require notification through an online portal, others by email or written notice to a specified address.

When preparing your notification, keep it clear. This may:

• Your policy number and insured entity name
• Key dates, including when the work was performed and when you became aware of the issue
• Who is the claimant
• A concise summary of the services provided
• A description of the allegation
• Copies of relevant documents such as contracts, emails, reports, or complaint letters

When to notify your insurer

If you do not notify your insurer as soon as reasonably practicable, you risk creating a dispute about cover. If you are unsure whether something should be notified, it is usually safer to notify early and let the insurer assess it.

In practical terms, you should notify your insurer if you become aware of any of the following:

• You identify a mistake, oversight, or omission in your work (or your staff’s work) that could reasonably lead to a claim, even if the client has not raised it yet.
• A client criticises or complains about your work, even if you disagree with the complaint.
• A client refuses to pay because they are unhappy with the service provided.
• A client makes comments suggesting they may take action against you now or in the future, even if it seems unlikely.
• You are accused of failing to deliver the service as agreed, promised, or advertised.
• A complaint is lodged with an industry body, regulator, or licensing authority.

Duty of disclosure

Professional indemnity insurance is governed by strict disclosure and notification obligations.

Under the Insurance Contracts Act 1984, you have a duty to take reasonable care not to make a misrepresentation when applying for, renewing, or varying your policy. This includes disclosing known claims, circumstances, and any information that could influence an insurer’s decision to provide cover or set terms.

Separately, once the policy is in place, policyholders are genuinely required to notify their insurer as soon as they become aware of a claim or facts that could give rise to one. Failing to disclose relevant information at proposal stage, or failing to notify during the policy period, can result in reduced cover, claim denial, or other remedies available to the insurer under the Act.

How to make Professional Indemnity claims smoother

A strong planning could help improve risk management plan. You can reduce delays and disputes by handling the early stages properly.

• Treat any client’s hint, or suggestion of a claim seriously. You cannot control how a client will act later, even if the matter seems unlikely to escalate.
• Notify your insurer as soon as possible if any of the earlier situations occur, even if you are unsure. Notify before engaging your own lawyer so you meet the policy’s notification and consent requirements.
• Keep employee communications controlled and consistent. Instruct staff not to speculate, argue, or make informal admissions in emails, calls, or messages. One poorly worded response can create unnecessary risk.
• Do not admit liability or attempt to resolve the complaint independently, even if you believe you made an error. Let your insurer manage the matter in line with the policy.
• Do not offer a settlement, refund, or “goodwill” payment without insurer consent. Also avoid disclosing your professional indemnity limit to the client, as it can influence the size and direction of a claim.
• Follow your insurer’s process exactly: Use the correct notification method and provide information in the format requested. If your policy requires written notice, do not rely on a phone call alone.

How notification helps risk management

Professional indemnity insurance is not only about paying claims. It is also about access to legal defence and guidance. Early notification can:

• Allow insurers to appoint experienced legal advisers
• Help manage communications with claimants
• Reduce the risk of escalation
• Protect your position under the policy

For service-based businesses searching, understanding notification obligations is just as important as choosing limits or comparing premiums. Flexible business insurance structures only work if policy conditions are followed.

The provision of the claims examples are for illustrative purposes only and should not be seen as an indication as to how any potential claim will be assessed or accepted. Coverage for claims on the policy is determined by the insurer, and not BizCover.