Informed Position Letters (IPLs)

What are Informed Position Letters and why do we need them?

There may be times when a firm identifies they have made an error or omitted to take an action which they were meant to which has caused a loss – or potential loss – to their client and they need to let them know and put the matter to rights, revisiting the advice and paying redress if necessary.

The obvious solution would be for the firm to step forward, contact the client, explain what has occurred, rectify the error and make an offer to remedy the situation (should there be a loss).

Insurers have no qualms in general with the principle, indeed it would be unethical not to advise the client and put the matter to rights, but the process is not quite as simple as one might envisage. In these circumstances, not only is there no claim/complaint against the firm but in doing so the firm has also admitted liability and made an offer. Thus, we have two breaches of policy terms which entitle Insurers to deny coverage.

A Professional Indemnity Insurance (PII) policy, whichever wording it may be, essentially is there to indemnify a firm in the event of a claim being made by a third party (i.e. a client). It is a legal contract between the Insured and Insurers and to obtain the benefit of cover it is necessary to observe the relevant terms and conditions. Failure to do so gives Insurers the right to repudiate a claim which leaves the firm uninsured and liable to meet the loss from its own resources.

To summarise, the issue to be overcome in this situation is how to tell the client the firm has identified a problem of which the client is blissfully unaware without breaching policy terms and then move to settlement with the financial support of Insurers. As the client is unaware of the error there’s no claim/complaint being made which means there’s nothing to which the policy can respond. If the client spots the mistake on their own and raises it with the firm it’s a straightforward claim/complaint to be dealt with in the usual way but that’s not what we have here.

You’ll be pleased to hear there is a solution that meets everyone’s needs. Whilst seeming rather artificial, it does permit us to overcome the difficulties outlined above and allow the matter to be dealt with under the policy. This process does not alter the general terms of the Professional Indemnity policy (which will still apply) but it is a useful ‘workaround’.

After identifying a situation, do not contact your client. This comes a little later; notify your broker immediately and provide all pertinent information regarding the matter. This would include, but may not be limited to, details of what took place, what should have taken place and if possible provide an estimate of any loss which has been suffered.

Your broker will notify your Insurer. Your Insurer will review the information provided, ask any questions they consider necessary to move the matter forward and once satisfied will agree to the issue of an Informed Position Letter (IPL) to the client, usually providing a template including the relevant points to mention in language that neither admits liability nor makes an offer but explains something has gone awry and invites them to make contact. If you are a Howden client, you can also pick up with your account handler on an example of what the template looks like.  

If/when the client responds to the IPL, they have indicated (by responding) that they have concerns which satisfies the requirement for a claim/complaint to be made. This allows the policy to respond. Thereafter, the firm will need to set out their findings and issue a Final Response Letter to the client (which will need to be agreed by Insurers prior to sending) making an offer and rectifying the advice as appropriate.

This article was authored by members of the Howden Financial Lines Claims team. If you have any questions on any of the above, please contact your usual Howden representative in the first instance. 

Robert Bass, Associate Director
E: [email protected]