There are keys terms which are prominent in Professional Indemnity Insurance:
Liability : Responsibility
Legal liability : Responsibilities enforced by law. This can be categorised as civil liability and criminal liability. For the purpose of professional indemnity insurance, only claims falling under civil liability are payable.
For claims falling under civil liability, if there is a prima facie evidence that there has been negligence, only when conditions for existence of duty and care is established, breach of duty is established and also following that breach, injury or damage to property incurred by third party is established.
In a case where there is a liability claim arising from the above reasons, the insurance company should be immediately informed. In case any legal summons or notice has been received, these should be re-directed to the insurance company. It is good to know that the policyholder is not bound by the insurance company for its defence in the case and can arrange its own defence.
Read More: Which Professional Services Should Consider Buying Professional Indemnity Insurance?
In order for the claim to be valid, the events leading to the claim should have occurred during the insurance period or retroactive period and the written first claim against the insured should be made during the valid policy period. The policy does not cover claims which have no contractual liability, claims which can be proven to have been occurred through intentional non-compliance of any statutory provision, and also cases of proven slander, loss of goodwill, penalties, fines, false arrest, libel, mental injury, defamation etc.
Further, it is necessary to inform the insurance company as soon as the policyholder comes to know about the circumstances that may lead to a claim. It means, as soon as the insured gets the notification about the claim, it is necessary to forward the claim to the insurer immediately. For the smooth claim processing, it is necessary to avoid the following:
- Accept responsibility or liability of the case
- Offer or settle the claim without informing or taking the consent of the insurer
- Reply to the claim without consulting the insurer
Case:
A valuation report for a property was prepared by surveyor for one of its clients who wanted to sell his property. The report was signed by surveyor in his own name which also mentioned his professional qualifications.
The report was given to the client who paid for the report and relied on it, sold his property. However, after a few days, the client came to know that the property was incorrectly valued and therefore, he sued the surveyor.
As the surveyor had a professional indemnity insurance, he approached the insurer to cover the claim as soon as received the notification about the claim. Though, the client’s lawyer insisted on the out of court settlement, the surveyor first informed the insurance company and let them handle the situation. Without the consent of the insurance company, the surveyor neither respond to the claim nor settled the claim on its own.
Due to the incorrect valuation, the client incurred losses and therefore, it was counted under civil liability. As the claim happened during the policy validity period, the insurer accepted the claim intimation of the policyholder.
In determining whether the professional indemnity claim should be settled or not, the insurer considered the following circumstances=
- the claim fell under civil liability category
- the errors occurred due to negligence on part of the policyholder
- the third-party suffered losses or damages due to the errors
Further, the insurer also appointed an expert who reviewed all the evidences and paperwork available.
In this case, the insurer found that the policyholder exercised reasonable care and skill while discharging his duties. As the client suffered financial losses by acting on the report submitted by the policyholder, the insurer paid compensation to the aggrieved party. In addition to the compensation amount, the policyholder also incurred expenses in contesting the case in the court, and the insurer covered defence costs as well.
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