Prompt intimation of claims and “circumstances” is a requirement of the Master Policy terms and conditions. Delay in intimation could potentially prejudice the handling of a claim and could have adverse consequences for the firm in terms of both cover and premium rating. It makes sense for practical reasons to intimate promptly – this allows as much time as possible for the background to be investigated and for steps to be taken to mitigate the position.
Although “circumstance” matters are disregarded for Master Policy premium discount/loading purposes, the prompt intimation of “circumstances” is important and is in the practice’s best interests.
What needs to be intimated?
The Master Policy Certificate of Insurance provides that “regardless of any Self-Insured Amount”, written notice must be given to the Insurers via Marsh in the event of:
- receiving “information of a claim for which there may be a liability under this Certificate”;
- becoming aware of “circumstances which might reasonably be expected to produce a claim irrespective of the [solicitor’s] views as to the validity of the claim”.
What is a ‘claim’?
It is clear that if you receive a Writ or a Summons naming you – in your professional capacity – as a defender you must notify Marsh as Master Policy Brokers. However a “claim” need not involve litigation.
As a guide, a claim is any demand or assertion by a client, former client or even a third party that a solicitor pay them damages and/or indemnify them against any existing, past or possible future loss. Claims may therefore be made orally, by letter of demand or by the service of legal proceedings.
Complaints need to be intimated where there is a suggestion of financial loss on the part of the client. There is no need to intimate a complaint solely in respect of service, unless the client is indicating that the poor service has resulted in a financial loss.
Where the firm requires to sue for unpaid fees and a counterclaim alleging professional negligence is hinted at in correspondence, the matter should be intimated.
What constitutes a notifiable ‘circumstance’?
The question of whether or not you are aware of circumstances which may lead to a claim is more difficult and often falls to be considered in the context of previous dealings with the client:
- some clients may complain more than others about things like delay but only to “let off steam”;
- other clients may, to your knowledge, be particularly litigious.
It is not suggested that idle threats must be intimated. Even actual complaints will not always involve a potential claim.
It is matter of making an assessment as to whether or not, in the context of a threat or complaint, there is a real possibility – not a probability – that a claim may in fact arise. This should not take account of your views as to whether the claim would or would not succeed. Sometimes solicitors do not intimate a potential claim because they do not think they would be liable. This can have the result of prejudicing the insurers’ position in relation to the defence or settlement of the claim.
When deciding whether you need to notify, you should disregard the fact that action may be taken to avoid, rectify or mitigate the loss or possible loss.
Unusual events which expose the practice to the risk of claims should also be intimated. Examples have included break-ins resulting in loss of documents and theft of PCs, denial of access to business premises, the discovery that a fax machine had been out of order for several days and the discovery that a firm’s computer system had been tampered with.
If you have any doubt at all about whether you should notify circumstances please contact Marsh.
Risk Management - No fear culture
No-one in the practice should be afraid to admit that they have made a mistake which may make it appropriate for a claim or “circumstance” to be intimated. If there is a ‘fear culture’, then there is an increased risk that someone will be more inclined to conceal a mistake or sit on a problem file rather than own up.
It is in everyone’s interests that colleagues should be ready, willing and able to make the appropriate person aware that a mistake has been made or that they need help. It should be made clear who needs to be informed when a mistake is made/discovered and what is required in terms of intimation to insurers.
Risk Management - learning lessons
The opportunity to learn lessons and minimise the risk of recurrence must be the only positive feature of a complaint or a claim. A constructive discussion about appropriate preventive action may also be cathartic, although potentially difficult, for those who were involved in/responsible for the error or omission giving rise to a claim.
It is all too easy to underestimate the scope for learning lessons, to dismiss the circumstances of the claim as unique and to conclude that there is no way that the situation could have been avoided. Occasionally, that may be a justified conclusion. However, more often than not it will be possible to derive some risk management benefit from a thorough discussion about the underlying cause or causes and the contributory factors. This is something that Marsh can help with, for instance, by facilitating the review process.
The following case study and the analysis that follows show that identifying the true underlying cause or causes is critical to the process.
After much discussion with the clients, missives were concluded for Mr and Mrs A’s purchase of a plot on which they intended to build their dream home. The missives were conditional on planning permission being obtained within six months so that Mr and Mrs A could give notice rescinding the missives within the six month period if planning permission had not been obtained.
The planning application was still under discussion when the six month period expired. No action was taken by or on behalf of the As to rescind the missives and, accordingly, the As were bound to proceed with the purchase. They were refused planning permission.
Mr and Mrs A made a claim against their solicitor for the losses they had incurred on the re-sale of the plot at a price considerably lower than their purchase price.
Underlying Cause of Claim
On the basis of the facts, the true cause(s) of this claim may have included one or more of the following:
- failure to ensure that the clients were aware of the meaning and implications of the missives condition; the action that required to be taken in different circumstances to ensure that the clients’ position was protected and the consequences of failure to take that action;
- failure to ensure that it was understood by all concerned, including the clients, who would have responsibility for taking the appropriate action;
- failure to diary the critical date(s) effectively with appropriate diary dates to prompt (and allow time for) discussions with the clients ahead of the ultimate deadline;
- failure to check the precise terms of the missives condition, relying instead on faulty recollection of the specific terms;
- making an incorrect assumption about the nature of the condition or about the allocation of responsibility for taking the necessary action.
Lessons can be learnt
This case illustrates potential hazards of:
- relying on one’s recollection of the precise terms of a missives condition, particularly after a period of months;
- assuming that a client will understand the specific terms and implications of a missives condition and the need for certain action to be taken timeously to protect their own interests;
- failing to ensure that the client appreciates the significance of timescales and deadlines, the importance of appropriate action being taken by them timeously and the consequences of them failing to do so.
How to prevent a recurrence
When a time limit is imposed:
- make it clear to the client in writing whose responsibility it is to take action within the time limit;
- explain the consequences of failure to take that action;
- ensure that the critical date is diaried (along with countdown dates) to prompt discussion with the client and allow time for appropriate action to be taken;
- double check the precise terms of the missives condition when the critical dates are diaried. Bear in mind that it may fall to someone else in the practice to act upon the diary notes;
- consider whether a suitable checklist could help to prompt those action points.
This article is intended to highlight issues on a general basis relating to insurance and risk management and does not contain legal, tax, accounting or investment advice. In view of its purpose, the article cannot have regard to any individual circumstances and Marsh cannot accept responsibility for the completeness and accuracy of its content for particular application. If you have legal, tax, accounting or investment queries regarding issues raised in this article, you should contact your usual professional advisers in those specialist fields. Alistair Sim is a Director in the Professional and Financial Risks Division at Marsh UK Ltd
In this issue
- The truth is a terrifying commodity
- Last orders for drinks licences as we know them
- Inside the Nicholson Report
- The room at the top
- To protect and serve
- All change for stamp duty
- Get an honest day’s work for an honest day’s pay
- Facing up to threats of action – and learning
- How to make other people run your IT smoothly
- Client care goes live
- Praise on anti-money laundering efforts
- Sheriff’s notes not recoverable
- Restoration or castles in the air?
- Marquess of Queensberry rules
- Website reviews
- Book reviews
- Conveyancers asked to order early reports