For businesses or professionals that offer specialist service or advice, professional indemnity insurance is a boon. Also called, errors & omissions insurance, the policy covers claims which are made against such professionals by people who allege that they have incurred losses due to their professional acts. Along with compensating the unhappy client, the errors & omissions insurance policy also covers legal expenses incurred by the policyholder in defending itself in the court.
Purchasing errors and omissions coverage is the first step which professionals and companies can take towards protecting themselves, however, they also need to understand what is required to do if someone files a case against them. Should this happen, the insurer needs to be notified as soon as possible with all the information—how, when and where the wrongful act took place along with the names and addresses of the injured parties. In case you do not approach the insurer within the stipulated time-frame or furnish the necessary information, the insurer can reject your claim.
Key Takeaways
Broad Allegation Shield: Professional indemnity insurance is designed to defend you regardless of whether the client’s claims are true or false. If a project fails and a client refuses to pay while threatening legal action, the policy is triggered.
Identify “Subtle” Warning Signs: You don’t always have to wait for a court summons. Red flags like unreasonable criticism, withheld payments, or a sudden breakdown in communication are “circumstances” that should be reported to your advisor.
The Danger of Silence: Delaying notification is a leading cause of claim rejection. If an insurer feels their ability to defend the case was compromised because you stayed quiet for months, they can legally deny coverage.
Maintain Professional Distance: Once a potential claim is identified, all communication with the claimant should be vetted by the insurer. Admitting a mistake or promising a refund without the insurer’s consent can void your protection.
Legal Expense Cushion: Beyond the final settlement, a major benefit of the policy is that it covers the high cost of advocates and legal experts required to respond to advocate letters or court filings.
Though it sounds simple, claiming professional indemnity insurance is a murky subject. Here’s what you should know:
Who can file a legal suit against you?
Anyone. But mostly it will be your clients. They are genuinely not happy with your work because you have made mistakes. You may have also failed to fulfill a commitment, potentially costing them money or creating that perception. Also, third-parties can make claims against you for things like copyright issues, defamation, intellectual property theft, etc.
When can you file a claim for your professional indemnity insurance ?
You can file a claim when someone alleges that you have been negligent in rendering your professional duties or you have not done what you promised to do. Then claims can take many forms. You might face accusations such as breach of contract, defamation, intellectual property theft, or negligent misrepresentation. For instance, your client may file a legal suit against you and refused to pay if a project you worked on fails to generate success. Or a competitor might allege that you have copied their website and make a claim against you. In both cases, your errors and omissions insurance covers you, regardless of the truth of the allegations.
How can you find out a potential claim in errors & omissions insurance?
A claim form or a snarky letter received from the client or their advocate is generally all the heads up you will require, and it is a strong sign that it is the time to get in touch with your insurance company or corporate insurance advisor.
Remember, not all circumstances are clear and therefore, claims can arise even without any warning signs. Some of the subtle warning signs which you should look upon are increasing tension in the working relationship with your clients, refusal to make a payment, unreasonable criticism, and complaints about work.
Read more: Should you buy a professional indemnity insurance
When should you notify your broker about the potential claim?
You should inform your insurer or us as soon as possible. Not notifying can significantly impact the likelihood of settling your claim. Insurers value timely notifications to address potential issues promptly. This way, they can prepare themselves and do their best to avoid spurious claims before they arise. Furthermore, delayed notification often results in claim denials. If the insurer believes their position is compromised, they can reject the claim, either partially or entirely.
If you’ve bought the insurance policy from a corporate insurance advisor like SecureNow, inform the advisor. They will handle the subsequent process with the insurer on your behalf.
Summary Table: Managing a Professional Indemnity Claim
| Aspect | Action/Requirement | Key Importance |
| Claim Trigger | Allegations of negligence, breach of contract, or IP theft. | Protects you even if the allegations are groundless. |
| Notification Timing | Immediate: As soon as a “snarky letter” or tension arises. | Prevents claim denial due to delayed reporting. |
| Information Needed | Details of the act, dates, and contact info of all parties. | Allows the insurer to build a strong legal defense. |
| Third-Party Risks | Defamation, copyright, or intellectual property claims. | Covers more than just service errors; includes reputation. |
| Critical “Don’ts” | Do not admit liability or offer a settlement. | Prevents compromising the insurer’s legal position. |
Points to Consider for a Smooth Claim Settlement Process in Professional Indemnity Insurance
- Do not admit responsibility or liability
- Do not offer, agree or promise to settle the claim without consenting the insurer
- Do not reply to a written complaint without informing the insurer
Frequently Asked Questions (FAQs)
1. Can I file a claim if a client just refuses to pay my invoice?
A) A simple fee dispute isn’t usually a claim. However, if the client refuses to pay because they allege your work was negligent or caused them a loss, that constitutes a potential claim. You should notify your insurer immediately to protect your rights.
2. Why am I told “not to admit liability” if I know I made a mistake?
A) If you admit fault, you may legally bind the insurer to a payout they haven’t authorized. Your policy is a contract where the insurer handles the legal defense. Let their experts and lawyers determine the best way to resolve the mistake without compromising the policy’s terms.
3. What happens if I settle a claim out of court on my own?
A) If you settle without the insurer’s written consent, they are not obligated to reimburse you for that amount. Always involve your insurer in settlement negotiations so they can handle the payment directly.
4. Will my premium increase if I notify the insurer of a “potential” claim that never happens?
A) Insurers generally prefer “precautionary notifications.” Reporting a tense situation that eventually settles amicably is viewed as responsible risk management and is less likely to impact your premium than a surprise, high-value lawsuit.
5. Does the policy cover me if a competitor sues me for copying their marketing?
A) Yes. Most Errors & Omissions policies include coverage for “Intellectual Property Theft” or “Copyright Infringement.” Even if the claim is baseless, the policy will cover the costs of defending your business against the competitor’s allegations.
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.
