Insurance disputes - the claims process demystified
Neil Williams, Claims Director at ICAS partner* Bluefin Professions and David Gooding, Partner at Mills and Reeve, set out what you should expect in the unfortunate event of a professional indemnity claim against you.
If your business faces a claim for professional negligence it can be a time consuming, expensive and confusing process. So it is worth taking a look at what might be involved in advance of a claim taking place.
All accountants' professional indemnity policies incorporate conditions which impose a duty to notify insurers as soon as possible and within the policy period of:
- Any communication whether written or verbal intimating a claim or an intention to make a claim against you arising from any professional neglect in the conduct of your business, or for any loss which might be covered by the policy.
- Any circumstance which might give rise to a claim. A circumstance is an incident, occurrence, fact, matter, act or omission which may give rise to a claim.
Make sure you review the notification provisions in your policy. Insurers may claim that their position has been prejudiced if you delay notification. If you have any doubts about the notification procedure or whether to notify a matter, you should consult your broker.
2. The pre-action phase
Once you have notified a claim or circumstance to your insurers and your brokers they are likely to ask for detailed information to assist them with their understanding of the matter. This might include requests for:
- Your views on whether you believe you might have a liability to your client, together with your thoughts on the potential value of any loss.
- Copies of your papers/relevant correspondence and, if appropriate, a draft letter of response to the client.
Once the insurers have all relevant information they will take a view on whether the matter will be covered under your policy and will determine what steps need to be taken in order to resolve the matter. If you have received a letter which purports to be a pre-action protocol letter of claim you will need to follow the procedures laid down in the pre-action protocol. Details of the protocol can be found on the Ministry of Justice website.
These procedures are straightforward, but you will be guided through the process by your broker and your insurer. It is also quite common for insurers to instruct one of their panel of solicitors at this stage. It is a key stage in the claim process and a carefully crafted letter produced by an expert solicitor can make all the difference. It is worth noting that the solicitor will be acting under a dual retainer and will have a duty to protect both your interests and those of the insurer.
This process can take up a significant amount of management time. Insurers will expect you to review your papers in detail, draft correspondence, etc, and you should not underestimate the time involved - it could easily be several days' worth of effort to deal with early correspondence in relation to a claim. It is also advisable for someone within the firm, other than the person involved in the underlying matter, to handle the claim internally. Professional indemnity claims can take on significant personal dimensions and having someone unconnected deal with the claim can assist with making the dispassionate commercial decisions that are often required to avoid the considerable cost of litigation.
3. A word on alternative dispute resolution (ADR)
At any stage in the claims process either party can seek to address the matter via ADR, usually in the form of a mediation or without prejudice meeting. A mediation typically involves the parties meeting on a specific day with an independent third party acting as mediator in the dispute. The aim is to attempt to resolve the dispute in an effective way and keep costs to a minimum. The mediation will be confidential (which has significant advantages if the dispute is of a sensitive nature) and the outcome is only binding once formal agreements have been signed. Although it is not obligatory to engage in ADR the courts take a dim view of parties who will not engage with it - unless they have good reason not to.
The following are key elements of the litigation process:
Issue of proceedings
Proceedings are started when the claimant's solicitors issue a claim form at court. The claim form must be formally served within four months of being issued. Further details can be found at the Ministry of Justice website. A claimant is also obliged to provide particulars of a claim which sets out the background to and basis of a claim.
Defence of proceedings
The solicitors appointed by your insurers will then acknowledge service and prepare a formal defence setting out your firm's position. This is usually within 28 days of service of the particulars of claim. A defendant is expected to confirm whether it admits or denies specific allegations.
The court will manage the ensuing litigation process which is likely to include disclosure of key documents by both parties, exchange of witness statements and expert advice.
If the claim doesn't settle during the litigation process trial will follow.
Litigation is to be avoided if possible. It is hugely expensive, can affect premiums and is usually a significant drain on resources. Even if you believe you have a good case it can still go horribly wrong at trial - the wrong judge on the wrong day, the witness who falls apart under questioning, etc. The courtroom is also a very public place. As you will be aware, your firm's brand is one of its most important assets and protecting that brand can be business critical. That is not to say that some cases shouldn't be defended vigorously. Just pick your battles carefully and go into a court room with your eyes wide open having fully assessed the risks with you advisers.
ICAS members are reminded of their obligations as detailed in the document Professional Conduct in Relation to Tax.
This article was taken from Bluefin Professions market review publication 'Adding up the risk'. To read the full article please visit the Bluefin Website.
Bluefin Professions are working with ICAS to provide access to exclusive insurance solutions especially for ICAS members. If you would like to find out more, visit our Bluefin page, call Lorraine Marchetti on 0131 225 0336 or visit the Bluefin website.
|About the authors|
Neil has over 11 years' experience dealing with professional indemnity claims in relation to a wide variety of professions including accountants and financial professionals. Neil has worked for a number of the leading professional indemnity insurers in the city, has a law degree and is ACII qualified. He currently manages the claims team at Bluefin Professions and regularly gives seminars on risk management.
David has been a professional indemnity lawyer at Mills and Reeve since 2002. His focus has been on the defence of claims against financial professionals and he acts for a number of the top 50 accountants' firms across the Midlands. David deals with a wide range of professional indemnity claims, from tax mitigation schemes to audit and transactional work, as well as claims against insolvency practitioners.