What causes professional indemnity insurers to reject claims – and how to prevent it

Professional indemnity (PI) insurance is an essential safeguard for many UK businesses. It protects against claims made by clients for financial loss or damages resulting from professional services or advice you’ve provided.

You may think a claim won’t happen to you – especially if you’ve never had an issue before. If a claim does occur, however, having a PI policy in place can be the difference between disruption and disaster.

 

Be proactive with notifications

One of the most important – and often overlooked – features of PI insurance is how strict it is when it comes to notifying claims or potential claims. Most policies require you to notify your insurer of any “circumstance” that could give rise to a claim, and typically this must be done within a specified number of days.

If you’re unsure whether something counts as a notifiable circumstance, the safest option is always to report it. Failure to notify within the timeframe – even if you weren’t aware it might lead to a claim – could lead your insurer to reject the claim entirely.

 

Why timing is critical

PI insurance policies often include what’s known as a “condition precedent to liability”. This means that if you fail to meet the notification requirements – even if the insurer has not suffered any disadvantage – they can still deny cover.

In today’s climate, insurers are increasingly strict in applying these conditions. They don’t need to prove that the delay affected their position – just that you failed to meet the requirement. If the claim ends up being worth millions, that’s a painful lesson to learn too late.

 

Not all claims are obvious

Some claims are easy to recognise – for example, a solicitor’s letter holding you responsible and demanding compensation. But in many industries, particularly manual trades, it’s less clear when a problem should be flagged as a potential claim.

A situation might unfold gradually: an incident occurs, is investigated, and months later you realise the consequences could be serious. By that point, it may be too late to notify – and insurers could deny cover based on late notification.

 

Make early reporting a habit

To avoid this, policyholders need to stay alert from the outset. Ask yourself: could this situation lead to a client holding us responsible? If the answer is yes, speak to your insurance broker straight away. You should report circumstances even if:

• You believe you are not liable, or


• The potential financial impact seems minor

The onus is always on the policyholder to notify, and delaying could jeopardise your cover. Check your policy's claims conditions to confirm what your notification period is and filter down through your management teams the importance of timely notifications.

 

Understand the fine print

It’s also vital to read the full wording of your PI policy and understand all the conditions, not just those related to notifications. For example, it may say you must not:

• Admit liability to a third party


• Offer any settlement


• Incur costs without your insurer’s consent

Breach any of these terms and your cover could be at risk.

 

Don’t lose your retroactive cover

One final tip: always check that your PI policy includes a retroactive date and that it remains in place at each renewal, and most importantly if you change insurers. This protects you against claims arising from work done in the past, but which you are making under the current policy period.

 

Talk to your broker

Professional indemnity insurance is too important to get wrong. If you're in any doubt about your obligations or how your policy works, speak to your broker. It could save your business a considerable amount of stress - and money - down the line.

 

At Fidentia Insurance, we’re here to help. Contact us today if you’d like to review your PI policy or discuss your notification procedures.