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Your Professional Indemnity (PI) insurance is no doubt one of the most vital covers you have for your business. If things don’t quite go to plan it can provide much needed financial assistance for legal and compensation costs in the event of action taken against your business.
Like all insurance policies, there are several important conditions and obligations under your insurance contract that you need to understand to ensure your policy provides the cover you’re expecting, so that you won’t be left high and dry when you come face-to-face with the unexpected.
PI insurance is issued on a ‘claims made and notified’ basis, which means the policy responds to claims first made against the insured during the policy period, and notified to the insurer during the policy period. In short, for a claim to be covered your policy must have been in place at the time the allegation was made against you, and when the claim is lodged.
In particular, one of the most important conditions of Professional Indemnity policies involves the requirement that circumstances which may give rise to a claim are notified to your insurer. As the policyholder you are obligated to inform them as soon as practical after you first become aware of a situation which could potentially result in a claim being made, even if your client hasn’t yet formally made an official complaint or engaged a lawyer. So in other words, you must advise your insurance provider if any of the following occur:
Failure to notify your insurer as soon as reasonably possible could lead to your claim being rejected. So, even if you’re unsure whether it’s worthy of letting them know or not, it’s in your best interests to do so.
And as tempting as it may be, don’t try to resolve any disputes yourself, no matter how small the problem is, as you might inadvertently admit liability which can result in your insurer suffering prejudice, and again jeopardise the chance of your claim being paid.
Duty of Disclosure
Another very important condition of Professional Indemnity policies involves your Duty of Disclosure at the time of taking out a new policy. Under the ‘Prior Claims/Circumstances’ exclusion, you are obliged to disclose on your application, any past claims or circumstances that may lead to a claim being made against you. If you do not comply with your Duty of Disclosure your insurer has the right to revoke your policy, meaning that the policy is void from the date of inception. Even if you attempt to make a claim for a fresh unrelated incident there will be no coverage. Your insurer does not have to prove that you intentionally mislead them – an omittance of information might be sufficient grounds to cancel your policy and deny your claim.
A migration agent recently learned the hard way after his claim was rejected. He took out a new PI policy, and despite having a long history of complaints made against him for providing negligent advice in both Australia and overseas, he failed to disclose any of these instances on his application for insurance. In particular, one complaint made a few years prior for failing to provide adequate advice was still being investigated at the time he took out the insurance. Recently he received letter from the department advising of another complaint made against him and subsequently lodged a claim with his insurer.
Upon investigation, the insurer became aware of the former and current outstanding complaints. They refused to pay his claim and terminated his policy based on the premise that he had not complied with his duty of disclosure. The case was closed and he was left to defend the allegations on his own.
How can I ensure my claim goes as smooth as possible?
There are a few basic rules you can follow to help future claims run as smoothly as possible. However, it’s still important to remember that not all policies are the same, so it’s crucial to take note of the terms of your own policy.
Most importantly keep in mind that, providing you abide by the terms of your policy, your insurance is there to protect you. Your insurer has a panel of experts ready to fight for you, including lawyers and investigators, and without your insurance your could find yourself between a rock and a hard place – either being sued with the possibility of losing your business, or forking out thousands of dollars from your own pool of funds to cover the cost of your legal defence and compensation to your client.