ArchiTeam Insurance Director Delia Teschendorff recently spoke to Vincent Rizzuto, Insurance Broker from Austbrokers Countrywide, about PI Insurance. Vincent offered some very useful advice for ArchiTeam members about an architect’s PI Insurance obligations, the importance of notifying your insurer about a potential claim and how to ensure a claim goes smoothly if one arises.
There are considerable risks involved in the design and construction of buildings. For architects, even with the best practice, mistakes can be made. However, risk can be minimised through good professional risk management, thorough and well managed internal practice systems, and with the mandatory support of Professional Indemnity Insurance (PI Insurance). All practicing architects must be covered by PI Insurance, to protect everyone, including the public, your clients, and yourself!
Why is Professional Indemnity Insurance necessary?
Firstly, PI Insurance is a mandatory requirement for registered architects, which along with an architect’s registration, must be renewed annually.
Secondly, PI Insurance is intended to give the architect protection against financial loss resulting from liabilities for breach of professional duty by reason of a negligent act, error or omission.
When do I notify my insurer?
You are obliged to inform your insurer as soon as you first become aware of a situation that could potentially result in a claim being made, even if your client or a third party has yet to make an official complaint or engage a lawyer. If in doubt about whether you should notify, it is prudent to talk to your PI Insurer for guidance as soon as is practicable.
For example, situations to notify your insurer may include:
- Any mistake, oversight, or omission in your work, or work of your partner or employees, that you are aware of that could possibly lead to a claim being made, even if your client is not yet aware of it
- A client has criticised or complained about your work, even if you feel the criticism is unjustified
- A client is refusing to pay you for work you have completed that they are unhappy with
- Any comments or remarks a client makes that indicates that they may make a claim against you, either now or in the future, even if you feel they are empty threats
- Any instances where you are accused of failing to meet your professional obligations, provide a service as promised or advertised
- If a complaint is made about you to your industry body or licensing board
- If a client has criticised or complained about the builder’s work, it may be prudent to notify the insurer as a dispute relating to a construction issue can potentially become a design or contract administration mismanagement complaint
Why do I have to notify?
By purchasing PI Insurance, the architect enters a contract with the insurance company. All insurance contracts include a condition for the insured (architect) to notify the insurer as soon as practicable of any claim, or circumstance that may lead to a claim. Failure to notify your insurer as soon as possible could lead to your claim being rejected.
Not notifying a circumstance to your insurer, does not mean it never happened. It also does not relieve you of your obligation to refer to the situation in your next renewal application. Failing to do so could potentially result in an indemnity dispute with any insurer who may view non-disclosure as a reason to avoid paying the claim.
What if I do not notify?
Our key message is to notify!
A failure to notify your insurer as soon as is practicable may lead to your claim being rejected and jeopardise the chance of your claim being paid. Even if you are unsure of whether it is a situation worthy of notification, it is still in your best interests to notify. The safest course of action is to notify as soon as you become aware of any circumstance that you believe may lead to a claim being formally brought against you
But surely, I can handle a small issue myself?
As tempting as it may be, do not try to resolve any disputes yourself, no matter how small the problem is, as you might inadvertently admit liability which can result in your insurer suffering prejudice, and again jeopardise the chance of your claim being paid.
Reporting any issue prior to acting yourself will allow us to provide the appropriate response to (hopefully) settle the matter quickly and efficiently without it escalating.
How can I ensure claim goes smoothly? What is required?
There are a few basic rules you can follow to help future claims run as smoothly as possible, for example:
- Ensure all your trading entities (both past and present) are noted as an Insured on your policy
- Always disclose prior known claims or circumstances that may give rise to a claim at the time of taking out your PI insurance, no matter how big or small
- Do not ignore any inklings or threats a client may have made, regarding a possible claim
- Notify your insurer as quickly as possible (before engaging your own legal assistance) if any of the circumstances listed earlier occur, even if in doubt, it means that you have complied with the requirements
- Never admit liability or attempt to resolve a complaint on your own, even if you are at fault. Let your insurer take care of it – that is why you pay an annual or monthly premium to them
- When dealing with your client following a claim, do not try to make an offer or settlement without your insurers consent, or disclose how much PI insurance you have. It might result in them trying to claim more compensation than they intended
What happens when I notify?
In situations where no formal claim has been made against you, the insurer will create a file only and ask that you do three things:
- Do not admit liability and act as a prudent uninsured. This means the insurer needs to wait for an ‘actual claim’ to be made against you before they can review the situation more fully in order to render assistance. If a response to your client is required, it is recommended that you send this to the broker and insurer for review before sending.
- Keep insurer informed of any further developments
- It is imperative that you retain documentation of all correspondence with all relevant parties and information related to the notification or claim
In the event of a formal claim being made against you, and which requires legal counsel, the insurer will quickly determine if the claim relates to architecture and appoint solicitors to defend you.
Final words of Advice?
DO NOT PANIC!
Please notify early and call your insurance broker at Austbrokers Countrywide (1800 245 123). Be reassured, your insurer has seen most situations and will manage the notification or claim accordingly, ensuring that all goes smoothy.
Additional information available here:
Disclaimer – ‘What could possibly go wrong?’ is not an advice column, it is only general comment from ArchiTeam who are not aware of your circumstances with any issue that you may have. You cannot rely on these general comments, each member must make their own decisions about any action they should take and seek independent advice of their own if they are unsure.