Receiving a notice from an angry customer or a letter of demand from a solicitor threatening to take action against you, can feel like things are out of control. You may want to immediately try and defend yourself or apologize to fix the problem.
If you have a defensive or emotional reaction to a possible claim, this may prejudice your insurers position. With a clear and procedural response, this can mitigate damage including damage to your reputation.
The legal environment in Australia is tough from a litigation perspective, so it’s very important that you respond with clarity and restraint.
So how do you handle a claim or potential Professional Indemnity claim without compromising your cover or reputation?
1. Don’t Admit Liability/Stay Silent
The most critical mistake you can make is admitting liability or offering a settlement before speaking to your insurer. Some Professional Indemnity policies in Australia actually contain a clause that voids your cover if you admit fault or make an unauthorized settlement or offer to pay.
- What You Should Do: Acknowledge receipt of the complaint professionally. An example of a statement would be: "We have received your correspondence and are reviewing the matter with our advisors. We will provide a formal response shortly."
- What You Should Avoid: Say "I’m so sorry, we messed up" or "I’ll give you a refund to fix this."
2. Notify Your Insurer Immediately
Professional Indemnity insurance in Australia is written on a "claims-made" basis, which means that you must notify your insurer as soon as possible and during the same policy period in which you first become aware of the "circumstance."
Important: You don’t need a formal lawsuit to notify your insurer. If a client threatens to sue or expresses extreme dissatisfaction with your advice or service, that is a"circumstance" that must be reported. Delaying notification can leadto the insurer refusing the claim due to "prejudice" (where yourdelay made the situation harder to defend).
3. Gather Your Facts
Before you respond to the allegations, it’s important that you establish what actually happened and gather your facts. This could relate to:
- Scope of Work: What did you actually agree to do?
- Communication Trail: Emails, project management notes, etc
- Proof of Compliance: Documentation showing you followed industry standards (e.g., Australian professional standards for Accountants or AHPRA guidelines for health).
4. Insurer Response
Once you have notified your insurer, they will typically appoint a claims officer or a solicitor to draft the response. The goal of this response is clarity, not emotion.
Your insurer is likely to request information on whether the person making a claim is actually the party you had a contract with. Also, they will want to address the allegations made. Using your scope of work documentation is very important as if there is an error outside of what you were hired to do, you may not be liable.
5. Relationship Management
The legal response is likely to be clinical; however, your client relationship might be fixable. It’s best to inform the client that you need to stick to the process where you are required to refer all disputes to go through your insurer. This takes away the personal side which can release tension by blaming the system.
If the client making the claim calls you, it’s best to listen and not argue. Take notes of the conversation and immediately send a summary of the call to your insurer.
In conclusion, the key points to remember are 1) do not admit fault or liability and do not offer some sort of settlement like money, 2) notify your insurer immediately of the circumstance, 3) gather all of your facts and provide clear details of timelines and documents, emails, etc, to your insurer.
Please read your PDF and policy wording to determine if there are any additional claim procedures that you must follow.
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The Sami Team
