Notification of Claims and Circumstances under Professional Indemnity and Directors’ and Officers’ Insurance Policies

November 2019

When it comes to Professional Indemnity and Directors’ and Officers’ insurance policies, the process of notifying claims or circumstances which may lead to a future claim is a notoriously difficult area to navigate. This is largely because these areas of insurance operate on a substantially different basis to other policies.

Both Professional Indemnity and Directors’ and Officers’ insurance are arranged on a ‘claims made’ basis. This means that to comply with the claims notification clause:

• Claims must be notified to the insurer during the same policy period in which the claim was first made against you
• Circumstances which you become aware of - or should be aware of - which may give rise to a future claim must be notified to the insurer during the same policy period in which you became aware.

When an insurer is notified of circumstances in accordance with the claims notification condition, then any subsequent claim arising after the policy period’s expiration as a result of the circumstances notified will be covered by this previous notification.

What is a Circumstance?

Whilst the notification of a claim is fairly black and white, the question of what amounts to a notifiable circumstance tends to be much more ambiguous. Examples of a circumstance can include:

• If you become aware of a deficiency in the service you have provided which has failed to meet the required standards, even if your customer has not yet become aware
• A complaint or criticism of your service or performance
• An intimation of a claim against you.

Notification of Claims and Circumstances after the policy’s expiration

Although notification ought to be made during the same policy period, a short run-off period is often permitted for claims or circumstances to be notified to insurers immediately after renewal - typically 7 to 14 days - to allow for instances which have arisen immediately prior to renewal.

If a policyholder attempts to notify claims or circumstances that were known about before the end of policy period after the designated notification period has expired, the insurer is likely to reject the notification.

To do so, the insurer will likely use the ‘Prior Claims and Circumstances Exclusion’, which excludes cover for claims or circumstances that were known of by the policyholder prior to the start of the current policy period which had not been previously notified to the insurer.

Late Notifications and Content of Notifications

Issues with the timing and content of the notification are two of the most common causes of disputes between insurers and policyholders on Professional Indemnity and Directors’ and Officers’ insurance policies.

In respect of the timing of the notification, it is not unusual for a policyholder to initially attempt to resolve the issue or complaint. This often occurs in an effort to avoid adversely affecting their insurance policy with a notification or claim, as this would mean that their premium could subsequently increase at renewal.

In such cases, notification to the insurer is often only made once the policyholder has failed to resolve the issue, which can be many months later. At this point, the insurer is likely to query why the circumstances were not notified previously, and they may reject the notification based on its non-compliance with the claims notification clause, which specifies the permitted timescales for notifications.

Careful consideration of the content of the notification to the insurer is essential - if the wording is too narrow and a claim later manifests which falls outside of the notification’s wording, it may not be covered. In some cases, it may be worthwhile to seek the assistance of a specialist solicitor to aid with the drafting of the notification to the insurer, as their expertise may help to prevent coverage issues occurring further down the line.

Claims Notification Triggers: circumstances which may/could/may reasonably/are likely to give rise to a claim

As different policy wordings have different ‘triggers’ for notification, this adds yet another level of complexity to this area of insurance. Some insurers require notification of circumstances which are ‘likely’ to give rise to a claim, while others use triggers such as ‘may’, ‘could’, and ‘may reasonably’ - all of which blur the lines as to when a notification should be made. To help you navigate the complexities in this area, it is strongly recommended that circumstances which could give rise to a claim should be referred to an insurance professional for thorough consideration - acting on your behalf, they will be able to recommend as to whether a notification ought to be made.

At Daines Kapp, we strongly recommend that the wording of the claims notification condition - along with any definition of ‘claim’ or ‘circumstances’ - should be reviewed carefully before purchasing cover, so you will have the peace of mind of knowing that you fully understand your obligations under your policy’s coverage.

Please do not hesitate to contact a member of our team with any queries or coverage concerns you may have – with our extensive experience, we can help you to deal with these complex issues.