When policyholders receive a PI claim or when they encounter circumstances that may or are likely to give rise to a claim, they are strongly advised to make an early notification to their insurers. Prompt reporting of claims and circumstances not only helps mitigate financial loss but also prevents complications that can affect both the insured and the insurer.
Real-world scenarios: The impact of notification timing
Case study: The benefits of prompt reporting
In contrast, another client promptly reported a claim as soon as they became aware of it. The insurer swiftly appointed defence counsel, and the matter was resolved efficiently. As a result:
- Defence costs were minimised.
- The client’s claims history remained favourable, supporting better renewal terms and premium rates.
- The insurer noted that the client demonstrated sound risk management practices, and a trust-based relationship was maintained.
Case study: The cost of delay
A client received a Letter of Claim under the Pre-Action Protocol but failed to notify their broker or insurer for four months. By the time the claim was reported, the policy had renewed with the same insurer, and legal proceedings had already commenced due to the failure to serve a Letter of Response in time.
Although the insurer could have declined the claim based on the strict notification provisions under the policy, they instead imposed additional costs due to prejudice:
Premium prejudice: Had the claim been disclosed at the time of renewal, the insurer would likely have adjusted the premium to reflect the increased risk. If that is the case, the insurer may seek to retrospectively charge additional premium following receipt of the claim.
Claim prejudice: The insurer lost the opportunity to defend the claim early, resulting in higher settlement costs, interest, and legal fees. This delay also negatively impacted the client’s risk profile, potentially affecting future renewal terms.
Conclusion
Timely and accurate notification of circumstances and claims is more than just a policy obligation; it’s a vital part of protecting your professional and financial position. As demonstrated, late reporting can lead to increased premiums, missed opportunities to defend a claim, and reputational damage, while early notification can significantly reduce costs and preserve favourable terms with insurers at renewal.
To avoid complications, policyholders must:
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- Recognise early warning signs that could indicate a potential claim.
- Understand policy coverage, including any exclusions or endorsements.
- Maintain clear records and documentation, including contracts and correspondence, to support claims effectively.
When in doubt, consult your broker for guidance. A proactive approach to claims notification can make a significant difference in the outcome.
Should you require any further assistance, please reach out to our professional indemnity insurance contacts below.
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Should you require any further assistance, please reach out to our professional indemnity insurance contacts below.