Insurers Rights under Professional Indemnity insurance, in case of a Loss
The insurer can defend claims against the insured and has the right to take over the defense. The insurer also has the right to have full discretion while conducting and settling any proceedings. Insurers’ rights under Professional Indemnity insurance in case of a loss, are well defined.
After taking over the defence, the insurer has the right to relinquish any claim of the same. The insurer’s expenses for defense and settlements will be deducted from the policy’s indemnity limits.
Key Takeaways
The Consent Mandate: You are strictly prohibited from settling a claim or admitting liability without the insurer’s written permission. As seen in the builder’s case (Case 1), paying a settlement out-of-pocket to “save time” often results in the insurer refusing to reimburse a single rupee.
The Cooperation Clause: Insurance is a contract of “utmost good faith.” If a professional, like Dr. Rajiv Saxena, fails to provide material facts or ignores the insurer’s requests for information, the insurer has the legal right to reject the claim due to non-cooperation.
Control of the Narrative: Once a claim is triggered, the insurer has the right to take over the defense. This ensures that the legal strategy is handled by specialists, but it also means the professional must follow the insurer’s lead in court.
Erosion of Limits: It is important to remember that every rupee spent on lawyers and court filings by the insurer is usually deducted from your total “Limit of Indemnity.” High legal costs can leave less money available for the actual settlement.
Right to Exit: If a series of claims arise that exceed the policy’s limits, the insurer can pay out the maximum amount stated in the policy and “relinquish” control, leaving any further defense costs to the insured.
If the insurer chooses to defend the insured, its liability under professional indemnity policy remains the same. No action taken by the insurers in defending the claims shall be modified or expanded in any manner.
The insurer can pay the insured for claims under this policy, including a series of claims. After payment, the insurer can relinquish control of the claim’s defense and won’t be liable.
The insurer can cancel the policy with a 30-day written notice to the insured’s registered address. In any such event, the Insurer should return the premium in pro-rate. If there is any retention clause, then the insurer should apply the same before the settlement of the pro-rated premium.
Read More: Duties of Insured Under Professional Indemnity Insurance When a Loss Occurs?
The insured must cooperate with the insurer for claim settlement and avoid making decisions without informing the insurer. Like rights of policyholder, Insurers’ rights under Professional Indemnity insurance, in case of a loss, are well defined as well.
Case: 1
The builder drafted plans for a concrete slab, the foundation of a storage building.The first draft needed amendments, so a second draft was submitted and approved by the client.
The concrete slab was laid based on the approved plan, and the storage facility was built.
However, after a few weeks, cracks started appearing in the concrete slab, and a claim was lodged against the builder. The investigation revealed that the builder submitted the wrong draft instead of the approved one.
To save itself from the long court battle, the builder opted for the out-of-the court settlement with the client and agreed to pay Rs 10 lakh. When the builder paid the compensation, he approached his professional indemnity insurance company.
However, as the builder had entered into the settlement agreement without the consent of the insurance company, the insurer refused to settle his claim. As the builder did not take the permission of the insurance company before settling the claim, the insurer rejected the claim.
Case: 2
Last week, a case was filed against Dr. Rajiv Saxena when the family of one of his patients, Ajay, charged him under negligence case.
Ajay was hospitalised when he started complaining of chest pain. The on-duty doctor Rajiv started the treatment immediately, however, seeing the deteriorating condition of Ajay, the doctor gave him some medicines. However, immediately after the medicine, Ajay fell unconscious and later died. It was found that Ajay was allergic to certain medicines and without checking it, the doctor gave him medicines which made his condition worse.
Being a breadwinner of the family, the sudden demise of Ajay shattered his family’s. At the same time, his brother filed a case against Rajiv. Luckily, Rajiv had a professional indemnity insurance, and he approached the insurer for the claim settlement.
Summary Table: Insurer Rights and Procedural Triggers
| Insurer Right | Description | Impact on the Insured |
| Right to Defend | The insurer can take full control of the legal defense. | Benefit: Access to expert legal counsel paid by the insurer. |
| Settlement Discretion | The insurer decides whether to settle or fight in court. | Constraint: Insured cannot settle independently (Case 1). |
| Right to Information | Access to all material facts, documents, and history. | Duty: Insured must cooperate or face rejection (Case 2). |
| Relinquishment | The insurer can pay the policy limit and exit the defense. | Limit: Insurer’s liability ends once the “Sum Insured” is paid. |
| Policy Cancellation | Can cancel with a 30-day notice for valid reasons. | Refund: Insurer must provide a pro-rata premium refund. |
| Deduction of Costs | Defense fees are subtracted from the indemnity limit. | Coverage: Remaining funds for the actual payout may decrease. |
Read More: Which Professional Services Should Consider Buying Professional Indemnity Insurance?
However, at the time of notifying the claim, Rajiv did not give complete details of the accident along with the information related to the patient’s health condition. The insurer followed Rajiv and called him numerous times to get the complete information. However, Rajiv did not cooperate with the insurer, and as a result, the claim got delayed by more than two months.
At last, the insurer rejected the claim due to non-cooperation of Rajiv. Without material facts about the case, how can Rajiv expect his insurer to settle the claim?
Frequently Asked Questions (FAQs)
1. Why can’t I choose my own lawyer if I’m the one being sued?
A) Most insurers have a panel of specialized “approved” lawyers. Because the insurer is paying the bills and has the “Right to Defend,” they usually insist on using their experts. You can sometimes request your own lawyer, but only with the insurer’s specific prior approval.
2. What happens if the insurer wants to settle but I want to fight to clear my name?
A) This is often governed by a “Hammer Clause.” If the insurer recommends a settlement and you refuse, they may limit their liability to the amount of that proposed settlement. Any legal costs or higher judgments awarded after that point would become your personal responsibility.
3. Does the insurer’s right to cancel the policy affect a claim I’ve already filed?
A) No. If a claim was made and reported while the policy was active, the insurer is still obligated to handle it according to the terms, even if they later cancel the policy with a 30-day notice.
4. What exactly qualifies as “Non-Cooperation”?
A) Non-cooperation includes failing to provide requested documents (like medical records or project drafts), missing scheduled meetings with adjusters, or providing contradictory information that hinders the insurer’s ability to build a defense.
5. If I am “guilty” of negligence, does the insurer still have a right to defend me?
A) Yes. The insurer’s “Duty to Defend” exists to ensure that even if you made a mistake, the compensation sought is fair and legally sound. They will defend you to minimize the financial damage, provided the mistake was not intentional or fraudulent.
About The Author
Amit
MBA Finance
Amit is an experienced insurance professional with 7 years in the industry, specializing in Errors & Omissions Insurance. Writing for SecureNow, he provides clear and insightful blogs and articles to help professionals understand the importance and nuances of E&O coverage. His expertise ensures that readers receive practical advice on protecting themselves from potential liabilities and professional risks. Dedicated to making complex insurance topics accessible, Amit stays updated on industry developments, delivering valuable content that empowers professionals to make informed decisions about their E&O insurance needs.
