One of the key points I invariably highlight during my talk on ‘Avoiding negligence claims’ concerns a pretty standard term that appears in PI insurance policies. Indeed it’s as important a term in PI policies as the ‘Don’t admit liability’ clause is in motor car insurance policies.

All drivers are well aware that if they are involved in a car accident they must not admit liability. To do so could invalidate a key term of their insurance policy. The fear that we all have is that were we to breach this term our insurers might refuse to pay out – if the claim is successful.

The same point applies to PI policies.  One of the key terms states that the insured will report ‘all circumstances that could lead to a claim’.  This means ALL circumstances – not simply those cases that the accountant fears he might lose.

I heard of a case recently involving a sole practitioner. An ex client made what the accountant KNEW was a spurious claim against him and reported him to the disciplinary committee of the ICAEW.  The accountant knew it was a ‘try on’ and that he had nothing to fear so he had not notified his insurers. Whilst he was awaiting feedback from the ICAEW his PI policy came up for renewal.  He was obliged to dislcose the onging proceedings when completing the renewal paperwork.  That was when he realised that he should have notified the insurers IMMEDIATELY.  His premium was increased pending an investigation by the insurers into all the circumstances of the case – they wanted chapter and verse despite the accountant’s protestations that the accusations were without merit.

The insurers concern was the fact that the acountant had not complied with the terms of his policy and notified them immediately he became aware of ‘circumstances that could lead to a claim’.  Eventually the ICAEW agreed that the accusations were without merit; indeed the accountant had no complaint about the way the ICAEW handled the matter. His insurers also eventually stopped asking questions but the increase in his premium stayed in place for a year.  Lesson learned!

I have written a 10,000 word ebook drawn from my talk on How to avoid professional negligence claims, containing tips and risk management advice for accountants in practice. You can buy the book or download a summary for free here>>>