In episode 12 of Unsure? Insure! we go behind the scenes of a professional indemnity claim.
Whilst contents claims are usually straightforward, professional indemnity claims can be complex on many levels.
Firstly, you’re probably feeling stressed. Possibly even afraid. There’s either a legal threat towards you (which in itself is a scary situation to be in) or a client is claiming a monetary loss. Sometimes this loss can be in the tens of thousands of pounds—especially if a client is claiming for loss of income amongst other damages.
The typical process of filing a professional indemnity claim
It all begins with collecting the necessary information the insurer requires. With Jack is here to help you gather the information we need to submit to the insurer. This information would include;
- Client details
- An overview of the situation
- The monetary loss (is your client asking for X amount in compensation or have they threatened you?)
- Contracts between you and your client
- Email or text conversations to show what’s happened and can strengthen your case
Once these details have been submitted, you can expect a response from the insurer within 12-24 hours to acknowledge they've received. At this point your claim will be allocated to somebody in the team who will review everything.
Professional indemnity claims can be complex, so it does take a few days for the insurer to look over all of the material you’ve submitted, review the situation internally and form an understanding of what’s happened.
The insurer is looking to see if this situation is covered under the policy, if it's happened within the policy period and what the next steps should be.
This can be a frustrating and worrying time whilst you patiently wait, but part of our role at With Jack is to check in with you, see how you’re feeling and try to offer moral support.
After the insurer has reviewed everything we’ll hear if the claim is covered. In some cases the insurer might have follow-up questions. Generally they're looking for some clarity around something in the documents you’ve submitted or a piece of information we might have not included.
If the claim is covered under the policy, the insurer will appoint lawyers to deal with your client directly or instruct you what to say in response to their claim. Every situation is different and assessed on a case-by-case basis.
In some cases the freelancer is hopeful of salvaging the relationship with their client as best they can. In that instance it’s probably a good idea to avoid lawyers dealing with them directly. Instead the lawyers would help you communicate with your client by telling you what to say.
A real behind the scenes account of a professional indemnity claim
Let's dive into a real situation that happened to one of our customers. I'll talk through the steps as well as the outcome.
In this situation the client refused to pay the developer’s invoice for work that had been completed and was threatening to "take things further" if the freelancer didn’t build extra features for free. We commonly refer to this as scope creep.
Initially the lawyers instructed the freelancer how to reply to their client. The ideal outcome being that the client would pay the invoice and drop the threats.
When it became obvious the client wasn’t going to cooperate and was putting pressure on the freelancer to work for free whilst becoming more threatening, the lawyers began dealing with the client directly.
It took several weeks of back and forth between the lawyer and the client. Ultimately the insurer paid the freelancer's invoice they were owed because the cost of fighting this would work out higher than the value of the invoice itself, which was £9000.
This solution was on the basis the freelancer wouldn’t be looking to recover their fees from the client and the project would be considered at an end from everybody's perspective.
At this point the freelancer's fees are paid by the insurer under the mitigation costs clause minus the excess (the excess is deducted from the fee that’s paid out), and the case is considered closed.
Just to highlight what the mitigation costs clause is, if your client is dissatisfied with your services, refuses to pay your fee and threatens to bring a claim against you, the insurer will pay you the amount owed to you if it’s possible to settle the dispute with your client by you agreeing not to press for the disputed amount; or if they believe this will avoid a claim covered under this cover for a greater amount.
The goal is to make sure the freelancer is in the financial position they should have been in prior to the loss.
This outcome worked well for the freelancer. They were delighted to not be out of pocket for the work they’d done, and to have the support of lawyers helping them stand up to their client when they became threatening.
We often highlight that one of the benefits of being insured is showing clients you can’t be pushed around. Yes, you may be a small outfit, but you have a team of people behind you when you need it.
At this point everything is considered resolved. You haven’t had to:
- shop around for legal experts
- find a lawyer who specialises in this area
- pay expensive consultation fees
You've had the legal protection of working at a big company, and the insurance has also helped to counter the non-payment issue.
To recap, here's the behind the scenes account of a professional indemnity claim.
- Professional indemnity claims can be complex because they involve a legal threat or request for damages and require lawyers to negotiate. They often take time to resolve
- To get the ball rolling with a claim, you’d want to provide details of the situation, what the monetary loss is, contracts and any communication to strengthen your case
- It usually takes several days for the insurer to review the material you’ve provided and debate things internally
- If your claim is covered, the insurer will appoint lawyers who will either deal with your client directly or inform you how to respond to them
- The lawyers will negotiate with your client to reach an agreement. Hopefully you’ll be happy with the outcome too, but the ideal outcome is to ensure you're in the same financial position prior to the loss