Solicitors' PII: A "claims made" policy - what does that mean?
17 February 2022
In December 2017 you acted for a client who was purchasing a new home. All went well, the matter was completed and you closed your file.
In February 2022 you receive an email from the client. They have now discovered a bypass is being built 15m from their home, which will seriously affect its value. They say they would not have bought the house if they had known and claim that you are at fault for failing to follow up on a local search that referred to proposed new roads.
Which Professional Indemnity Insurance (PII) policy do you notify this matter to? The policy in place in 2017 when you did the work? Or the policy that you have now? It might make quite a difference if your self-insured excess was £2,000 in 2017, but £10,000 under the policy in place when the claim is made in February 2022.
Solicitors’ PII is written on a “claims made” basis. This means that the policy in place at the time the claim is made by the client will provide cover. This is the position regardless of when the work was undertaken or the date that you notify insurers of the claim, although remember that your policy will require notification to be made “as soon as practicable” (or words to that effect).
The exception to this is where you notified a circumstance that may give rise to a claim (“a circumstance”) to insurers on a previous policy. For example, if you are concerned that you might have been negligent and a client could have a potential claim against you, then you should always make sure the matter is notified to the insurer on risk at the time as it would be deemed a circumstance, or a precautionary notification. If a claim is made by the client at some later stage regarding the same issue, it is the policy in place when you made the precautionary notification that will respond – not the policy in place at the time the client makes the claim against you.
In the scenario described above the claim will be noted under the policy in place in February 2022 when the claim was made.
For solicitors’ PII the position can be briefly summarised as follows:
A circumstance - will be noted against the policy in place when the circumstance is notified to insurers
A claim – will be noted against the policy in place when the claim is made (or intimated) against you, unless the matter has already been notified as a circumstance, in which case it will be dealt with under that earlier notification.
To demonstrate this important issue further, we invite you to consider the following scenarios, which also cover the situation when there has been a succession.
A final bit of guidance…..
The “claims-made” nature of solicitors PII policies means that it is always important to notify your current insurers of a “circumstance” you are aware of prior to changing insurers or being succeeded to. Not only do you have an obligation to do this under your policy, but it will not sit well with your new insurer, or the insurer of a successor firm, if you have omitted to do this and a subsequent claim comes in that will then fall to be dealt with under their policy.
Likewise, if you are increasing your excess when you renew your policy with your existing insurer, always double-check to ensure that all precautionary matters have been identified and notified prior to the change. This means that if a claim does arise then it will be dealt with under the earlier policy with the lower excess.