Duties of Insured Under Professional Indemnity Insurance When a Loss Occurs?

When a loss occurs, the insured has the following duty under professional indemnity insurance:

1. Give written a notice to the insurance company immediately or as reasonably practicable of claims made against the Insured.
2. Advise the Insurance Company of any circumstance or a specific event which can lead to a claim against the insured.
3. Immediately forward all claim, summons, writ, process and documents which relate to the event leading to the claim as and when received by the insured.
4. Provide any additional information as may be required by the insurance company.

Key Takeaways

• The Written Mandate: Verbal notification is rarely enough. The insured has a strict duty to provide written notice of claims to ensure there is a legal record of the report within the policy tenure.

• Proactive “Circumstance” Reporting: You don’t have to wait for a lawsuit. If a patient reacts poorly to a medicine (Case 1) or an accident occurs in a facility (Case 2), reporting the event immediately allows the insurer to provide early guidance and potentially avoid a court battle.

• The Cooperation Premium: Dr. Shayam Prasad’s decision to cancel a trip to remain available for the insurer is a prime example of active cooperation. This transparency helps the insurer validate the claim and settle it without technical delays.

• Continuous Policy vs. New Contract: Each renewal is a new contract. If you fail to report a “known circumstance” during the current year and try to report it after renewing, the insurer may reject it for “late notification” unless a continuous cover clause exists.

• Avoid Litigation via Early Engagement: In the case of the care facility, immediate reporting allowed the insurer to engage the family directly. By addressing concerns early and providing expert legal advice, they resolved the matter without “costly litigation.”

It is crucial that professional indemnity claims or any event or circumstance which may give rise to a potential claim made against the insured should be notified to the insurance company promptly. This also applies when renewing any existing policy or taking another policy with another insurance company. Unless stated under “continuous policy”, each new policy period represents a new contract which allows the insured to avoid additional claims which should have been made during the previous policy periods. This usually occurs when there is late notification.

Read More:How is Claim Processed in Professional Indemnity Insurance?

The insured should make a full disclosure of any preceding claim made against him under the professional indemnity insurance when if it was with a different insurance company. Of there has been an omission in filing a claim or disclosure of any information pertaining to the claim, the insurance company may void the claim and do not accept the responsibility in settling any defence costs or any third-party payments. The insurance company may ultimately cancel the cover and void the policy.

Case:1

Rajan complained of a stomach ache when his family rushed him to the private clinic of Dr. Shayam Prasad. Thankfully, the doctor was present at that time who immediately started the treatment. To deal with the severe pain of Rajan, the doctor gave him some medicines, however, soon after that his heart beats started increasing, and his condition deteriorated.

In a few seconds, he went into a coma and died after a few weeks. This unfortunate case turned out to be a huge financial disaster for Rajan’s family who solely depended on his income.

It was the case of medical negligence as the doctor did not check the previous medical records of Rajan who was allergic to certain medicines. As a result, the simple medical issue of stones went wrong. The patient’s family filed a medical negligence case against the doctor, who thankfully had a professional indemnity insurance.

As soon as the case was filed, the doctor immediately informed his professional indemnity insurance company.

In order to process the claim, the insurer asked for some details about the patient and complete account of his medical history. Without wasting a minute, Dr. Shayam handed over all the details to the insurance company.

In fact, Dr. Shayam had to visit Pune to attend a medical conference. However, he cancelled his trip and preferred to stay here in Delhi as he required appearing before the insurer if the latter required more details about the case.

This matter was resolved when the insurer paid the compensation to the family of Rajan.

Case: 2

Shreya had fallen from a horse when she was only two years old. In the incident, she suffered severe head injuries which made her quadriplegic. Though, Shreya’s parents had been caring for her for so long, however, as they were growing older, it was becoming difficult for them. So they decided to get her admitted in an organisation which took care of people like Shreya.

They knew that Shreya would get access to good medical treatment and her rising expenses would also be met. It took the parents a number of months and series of consultation with the facility in question to take any decision. Once they are satisfied, they took Shreya to the facility and she settled there well.

However, what the facility failed to inform Shreya’s parents that it had a very high staff attrition level and there were some of the employees who were not capable of managing needs of patients. Shreya was in the facility for just a few days, when the attendant left her in a hot bath tub. When the attendant returned after an hour, Shreya was found to have some redness on her body.

Read More: Which Professional Services Should Consider Buying Professional Indemnity Insurance?

Summary Table: Duties of the Insured During a Loss

She was immediately rushed to the hospital. The burning was so severe that Shreya had to stay in the hospital for ten days. Fortunately, she survived the incident. Shreya’s parents filed a case against the facility for negligence. As the facility had a professional indemnity insurance policy, they reached the insurer on the same day when they got a legal notice from Shreya’s parents.

The timely notification helped the insurance company to give guidance to the facility and engage the family to give a complete account of the situation. The insurer invited the family to discuss what had happened and also addressed their immediate concerns.

The insurer also asked for some documents like the date and day of admission of Shreya into the facility, her age, who was attending her on the day of the accident, etc. The facility provided the complete information.

The professional indemnity insurance company gave the facility access to both the experienced claim manager along with expert legal advisors. In this case, Shreya’s family claim was resolved without the costly litigation.

Frequently Asked Questions (FAQs)

1. What happens if I forget to mention a claim I had with a previous insurer five years ago?

A) This is a breach of the “Duty of Disclosure.” If the new insurer finds out, they can void your current policy and reject any new claims, even if they are unrelated to the old one. Always provide a full claims history during renewal or application.

2. Does “immediately” mean I have to report it the same hour the accident happens?

A) While “immediately” is the standard, most policies allow for “as soon as reasonably practicable.” However, waiting several weeks—especially if you have already received a legal summons—can give the insurer grounds to deny the claim.

3. If I receive a legal “Summons,” can I wait to see if it’s serious before telling my insurer?

A) No. You have a duty to forward all legal documents (summons, writs, processes) as soon as you receive them. The insurer needs these to file “memorandums of appearance” and other legal replies within strict court-mandated deadlines.

4. Why does the insurer need to know about a “Circumstance” if no one has sued me yet?

A) Reporting a circumstance “protects” your right to coverage. If you report an event today and the client sues you three years from now, your current insurer (or the one active at the time of reporting) will likely handle the claim, regardless of who your insurer is in three years.

5. What kind of “additional information” can an insurer ask for?

A) This depends on your profession. For a doctor, it could be patient charts and consent forms. For a facility, it could be staff shift logs and training certificates. Failing to provide these “material facts” can lead to a claim rejection due to non-cooperation.

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.