Ms Lumsden Kelly said personal indemnity insurance is generally a ‘claims made and notified’ policy, which means the insurance company will respond to any claims you notified them about within the policy period. If professionals delay their reporting, they are at risk of being outside the policy period.

“For that reason, if you do have a potential claim, it is a good idea to notify the insurer [immediately] because it means you get it within the policy period and you know that you’ll be covered under the cover you had at the time. The cover you have for the next year might be different and exclude different things,” she explained.

Ms Lumsden Kelly said practitioners often do not want to notify the insurer about potential claims because they are concerned this could affect their premiums in the following year.  

“There’s a bit of tension there. [Practitioners] want to notify the insurer to make sure they are actually covered for it, but they don’t want to notify the insurer because their premium might go up and if a dispute doesn’t actually go anywhere and nothing comes of it, then they’ve impacted their premium for no reason. It’s a bit of a balancing act,” she said.

Ms Lumsden Kelly stressed the importance of notifying the insurance company early on where a complaint is an allegation of gross negligent advice, even if the dispute is still at the internal dispute resolution stage.

“If you investigate that complaint and discover that it’s actually well founded, you’re going to want to claim on your PI insurance for whatever compensation you have to offer that person,” she cautioned.

“If you can look at it and recognise that there was bad advice given there, there’s probably no point forcing that consumer to go to an EDR, because you’ll just prolong the experience.”

Firms should also be notifying insurers once any dispute reaches an external dispute resolution body, she said, as there is an increased risk the dispute will go to litigation at that point.

These types of issues are particularly critical when a firm has changed their insurance or their insurance lapses as it is no longer continuous cover.

“That’s when you’ll get these disputes about whether a claim was notified at the right time or not,” Ms Lumsden Kelly said.