These lyrics by Tim Rice from the show Jesus Christ Superstar are very applicable to one of the problems facing companies and professional bodies in respect of their Professional Indemnity (PI) Insurance policies. What to tell the Insurers about possible claims against the Insured?
In almost all PI polices there will be the words which require the insured to notify the Insurers of any circumstances that are likely to, or may give rise to, a claim. It is also usual that the notification is a condition precedent upon the Insured being covered for the claim in question.
One of the difficulties, as we mentioned above, is what do you tell the Insurers? How do you establish that there is a claim against you, and do you have to notify even if you vehemently deny any breach of your obligations?
Firstly, the actual wording of the policy itself needs to be carefully considered. What are the specific obligations that the Insured has taken on? Is there a definition of “circumstance” or is it left undefined and therefore quite wide in scope?
Secondly, is the specific matter in question something that is “likely to” or “may give rise to” a claim?
The answers to the first set of questions is easily established. The second question though is harder to nail down. It will all depend on the contractual obligations that a company or professional body has entered into, and additionally whether or not there has been any formal claim made in respect of a breach of those obligations. It could be simply something that has been said at a meeting, or indeed in a conversation between various parties. Or it could be a formal letter which gives specific details of the breach and the potential loss arising from this.
In the latter case, the decision to notify Insurers is really a no-brainer, even if there is every intention of fighting the claim in question. However, there may be the situation where, once the claim is investigated in detail, it is established that the insured knew about it sometime previously, and yet failed to notify the Insurers. In this instance it is likely that the condition precedent of the notification would be enacted.
Establishing exactly what the Insured knew, and when they knew it, has become a bit of a minefield in respect of PI claims, especially when the sharp tool of hindsight is applied! But it is a vitally important cog in the PI claim wheel.
The best course of action is to seek external advice in respect of the potential claim itself. Is it a breach of the contractual obligations? If so, what does this mean for the Insured? This advice will then enable the Insured to act and, where necessary, to provide the notification in good time. This does not mean, of course, that a claim will be made under the policy, but it does ensure that if it is, then the Insured is covered.
Lastly, all companies and professional bodies who take out PI Insurance should be very careful when changing Insurers. A new Insurer will not take kindly to finding itself being asked to cover a claim for a circumstance that it considers was applicable to a prior year!
“What’s the buzz? Tell me what’s happening”. Best to tell.