Professional Indemnity Insurance Claims

Policyholders should be aware that Professional Indemnity insurance is almost invariably written on a ‘claims made’ basis (in contrast with most other liability policies, which tend to be written on a ‘claims occurring’ basis). This means that a Professional Indemnity policy will only cover those claims or circumstances (i.e. matters which could give rise to a claim in the future) which are first notified during the policy period.

 

It is immaterial when the negligence or breach of professional duty occurred (subject to any retroactive date). What is important is the date the intimation of a claim, or allegation of negligence or breach of duty is made. The insurance covers the policyholder for claims made during the life of the policy no matter when the original act, error or omission occurred, or loss was suffered. However, once a policy has been lapsed or is cancelled, no further cover will operate, notwithstanding that cover was in place at the time of the original act, error or omission.

For the reasons stated above it is imperative that any claim or circumstance of which an insured becomes aware during the policy period is notified to insurers immediately, as once a policy period has expired there will be no cover in force. This is true not only when changing insurers, but when ‘renewing’ a policy with existing insurers, as unless the policy is written on a ‘continuous’ basis, each new policy period will usually represent a ‘new’ contract and allow insurers to avoid claims which should have been notified during the previous policy period, especially where late notification has prejudiced their position.

 

It should also be noted that for certain professions there are additional obligations in notifying disputes likely to be referred to adjudication under the Housing Grants Construction and Regeneration Act 1996. The insured should be familiar with these obligations and the strict time limits imposed.