Avoid the pitfalls in making a claim under your Professional Indemnity Insurance

Anyone who offers knowledge or services as part of their business could be subject to a legal claim if their advice causes financial loss to a client or employer.

Professional indemnity insurance protects bookkeepers from this risk, however it is vital that you have the correct level of insurance in the event that a claim is made against you.

Equally important is understanding your policy to ensure that it meets your requirements and that you know what to do should a claim be made against you.

To delay can be costly as insurers will wish to assume control of how the claim is progressed particularly if it is likely to involve legal proceedings. It’s therefore essential that at the first suggestion of customer dissatisfaction that you read the Claims Conditions section of your policy. Failure to adhere to any condition can result in an insurer being unable to provide an indemnity.

Because the policy covers your legal liability it is necessary for a customer to initiate proceedings against you before the policy can operate. In most cases this should take the form of a letter from a solicitor advising that it is a Preliminary Notice of claim under the Professional Negligence Pre-Action Protocol. You are required under the Protocol to acknowledge within 21 days, receipt of the letter. You are also required to forward the letter your insurer within the specified number of days of receipt as outlined under your policy. Insurers will thereafter respond on your behalf.

It may be that a customer during a dispute threatens to make a claim against you without at that time taking actually taking any concrete action. In such a circumstance you must report this to your insurer, in writing, within a specified time. Failure to do so may invalidate your policy.

In circumstances such as:

  • receipt or knowledge of a Letter of Claim or a threat
  • notification or intent to take legal action

then again you must advise your insurer within a specified time. Notification within this period is particularly important since any delay may prejudice your insurer’s legal position and again may invalidate your policy.

It is also imperative that throughout this process you do not admit liability or attempt to settle or defend a claim without your insurer’s consent. Such action might prejudice your insurer’s position and result in invalidation of your policy.

Because of the nature of legal liability most insurers do not have a generic claim form to complete. Instead you should contact your insurer by email or post providing an initial notification of the circumstances of the claim or potential claim. Upon receipt your insurer will provide a response outlining any further information required and any procedure to be followed.

If your insurer is to respond to a potential claim it is essential that you follow the claim conditions outlined in your policy and that you comply with any stipulated time limits.

AAT  has its own PII offer for members and provides guidance as to the minimum level of cover you need as a licensed member.

Chris Schofield FCII is a Director of Trafalgar Insurance Company Limited.

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