A circumstance which ‘MAY’ or ‘IS LIKELY TO’ give rise to a claim
While we always encourage clients to ensure they have a good understanding of their policy wording, it is not always easy for the layperson to appreciate exactly how the language of a policy might impact them. This is particularly true where a change is represented in what might appear to be a tiny difference in terminology. However, this could have a significant impact on what you need to do in order to comply with the terms of your policy.
The real test of a Professional Indemnity (PI) policy is whether or not it responds in the event of a claim or a potential claim. One of the most important sections of your policy wording relates to the process you must follow if you wish to notify a ‘circumstance’ (in other words a potential claim). The definition of a ‘claim’ and how it should be notified will be relatively uniform in PI policies. But there are some subtle differences in definition when it comes to a ‘circumstance’ and you must ensure that you understand the ramifications of a seemingly minor semantic change.
Your policy wording will either state that you are required to notify:
- a circumstance which may, could or might give rise to a claim (the may definition)
- a circumstance which is likely to give rise to a claim (the likely definition)
For both variations, there has to be a ‘circumstance’. This could be an incident, occurrence, fact, event, happening or state of affairs (for example, a complaint from a client concerning the service your business has provided).
What constitutes a circumstance which ‘may’ give rise to a claim sets a wider threshold than that required by the ‘likely’ definition, which requires a stronger degree of certainty.
With the ‘may’ definition, a circumstance is less likely to be rejected by an insurer. However, it does increase the onus on you to consider all complaints and suggestions of client dissatisfaction carefully and to notify them if you believe they may give rise to a claim.
With this language, you should ensure that your policy offers you the protection of a wide ‘innocent non-disclosure’ clause. This should protect you in the event that you innocently failed to notify a ‘circumstance’, for example, where you did not consider it a situation which might lead to a claim.
When the ‘likely’ definition is used, the term ‘likely’ means ‘probable’ or ‘more likely than not’. Therefore, you will be required to provide insurers with enough information to suggest that a claim is more likely than not to be made.
If you are unable to provide sufficient information to demonstrate that a claim is ‘likely’, then insurers may reject the claim. This means the matter could be excluded under a subsequent policy leaving your business exposed to an uninsured loss if the matter subsequently develops into a claim after renewal.
Bearing all this in mind, you need to gauge the subtle language differences when considering whether to notify a circumstance. You should check the policy wording carefully in the event that you change insurers and/or your policy wording is changed or updated.
Our role as an insurance broker is to provide you with policy coverage that affords your business an appropriate level of cover. Where a firm’s work and/or claims history impacts the breadth of cover available, our role is to guide you on the cover you are purchasing, explaining any changes to your policy wording.
For some professions, a ‘may’ policy wording will be preferable to a ‘likely’ policy wording while for others, the reverse will apply. Where appropriate and available, we may provide the option of a ‘may’ policy wording and a ‘likely’ policy wording, explaining the variations between the two and their possible impact on your business in the event of notification.
Where policy wordings are concerned, the devil really might be in the detail. Do ensure you understand what is covered and what is not covered and that you know what to do if you need to notify a circumstance. If you require clarity, consult your insurance broker.
This article was submitted to be published by Howden UK Group Limited as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer.
