When is a Complaint a Notice of Claim?.
A year ago, despite having continuously held PI insurance for over 20 years, Allcott Associates found themselves facing a 6-figure claim without an insurer willing to provide cover. This story has a happy ending, with the claim being successfully defended in court (by an insurer), but in sharing this cautionary tale, Kim Allcott hopes to save other firms the same angst that they experienced.
In 2017, Allcott Associates received an email from a client detailing some issues they had with a survey and asking for a copy of the firm’s complaints procedure. This was provided immediately, along with explanations addressing the issues raised. When we didn’t receive a reply for several weeks, we considered the client to be satisfied with our response, and we put the communication to the back of our minds.
Later that year, we switched PI insurers. We will call them Company A and Company B. We switched from A to B.
To our surprise, 9 months after we received the client’s initial email, we received a formal complaint from them. Initially we had no concerns – we knew that we could defend every point on the complaint. Furthermore, some desk research revealed that the client owned the company that quoted for the claimed works, and they therefore had a substantial conflict of interest. We duly notified our incumbent insurer (Company B), expecting a straightforward case. Indeed, they responded quickly to confirm that they would provide the necessary legal support. We heard nothing more for some time, despite chasing our broker. Then, just 1 week before the formal response to the claimant was due (leaving us no time to compile a case), the insurers told us that they
considered the initial email to be the complaint, and that Company A should therefore provide the cover.
Of course, company A disagreed! They were convinced (as we had been), that the formal complaint constituted the claim, not the original email correspondence. Our broker, Company A and Company B were all reassuring us that we were covered, but nobody could tell us who we were covered by.
Given that both insurers were RICS-approved, we immediately sought advice from the RICS. This did not prove to be reassuring – the RICS suggested that we were not insured owing to non-notification, as per the terms of our insurance policy. However, encouraged by the assurances of our broker and our belief that the original email was ambiguous, we did not feel that this assessment was fair or accurate, and so we looked for further advice.
We approached the insurance ombudsman, but we were told that because we employed more than 10 people and had a turnover of over £1 million, we were not eligible for their support. Next, we went to Lloyds of London for advice. Although they did not have the authority to force the companies to pay up, they did at least offer to apply some leverage, particularly because if cover was not provided there was a chance that the client could be left out of pocket.
We also sought our own legal advice and learned that the RICS guidelines for PI insurance state that insurers cannot avoid cover by virtue of late notification, as long as the failure to disclose was ‘innocent’, i.e. there was no intent to deceive.
The saga continued
Despite this regulation, both Company A and Company B continued to refuse to cover the claim. We moved to go to arbitration through our solicitor, at which point Lloyds were able to facilitate communication between the two companies. Given that the issue was agreed to be innocent non-disclosure, and therefore the original email was identified as the initial complaint, company A agreed to cover us.
What are the rules?
As we all know, if you receive a claim, you must notify your insurers immediately. According to the RICS, a claim is a letter formally advising you of legal action, or an indication to the effect – ‘I’m going to sue you’. However, as we have found out, insurers may define a claim differently. To be safe, we would recommend getting in touch with your broker or insurers at the first sniff of a claim.
If a notification is missed, however, you may still be entitled to some cover. According to the Insurance Act 2015, if non-notification is ‘not deliberate or reckless’ then the insurers still have obligations towards the insured. This doesn’t necessarily mean full cover – if the non-notification is so serious that the insurer would not have agreed to insure you in the first place, then all they need to do is refund the premium. If timely disclosure would have raised your premiums, then the insurer can proportionately reduce the amount paid on the claim.
Take home messages
Everyone makes mistakes
and some complaints will be valid. Many more will be down to misunderstandings or unreasonable expectations; for example, we have received complaints for not checking the condition of the foundations on a building survey, and for having the property owner’s car in the driveway in the photos in the survey report! Understandably, sole traders and companies may be unwilling to notify insurers of all client grumbles for fear that their insurance excess will increase. Nevertheless, however absurd the complaint, if there is the slightest chance that it could progress to a claim then notifying early is good practice because it allows insurers to build a strong case. ,
Furthermore, if you are aware that a complaint could possibly progress to a claim, you will void your insurance contract if you do not disclose it.
It’s also wise to stay up-to-date with RICS and PI insurance guidance. The landscape is constantly changing
and new communication platforms introduce more questions. For example, does a bad review warrant notification? What about an angry tweet? If in doubt, open and honest dialogue between surveyors and insurers seems to be the only sure-fire way to make sure that cover is comprehensive and fit for purpose. ,
Comments from Sava
It can take time to build a good working relationship with one insurer and/or broker, and if you switch to a new insurer or broker, remember that a new working relationship will need to be built from scratch.
Having changed insurers last year, we quickly realised that the expectations between two insurers can change significantly. Our previous insurer trusted that we were competent to determine if there was a 50% or more chance that a complaint would lead to a claim, and they were confident that we would not jeopardise our or their position when handling queries.
However, we had to earn the trust of our new insurer who did not adopt the same approach and we were required to notify them of all potential complaints or claims.
You should have a clear discussion with your insurers on this aspect to ensure everybody has the same understanding and to avoid any problems further down the line. In our experience, when a customer questions something in the report, clarifying the level of service often rectifies the situation. However, you should make it clear with your insurer if you intend to deal with emails that
seek ‘clarification of the service’ and they can confirm if you should notify them of such emails, and if they need to approve any response before it is sent.
Communication is key and it’s very important to build a good working relationship with your broker and PI insurer. We recommend being honest and open when entering a new policy and during your discussions and hopefully
you can avoid being challenged. ,
Kim Allcott is Director of Business Development at Allcott Associates LLP, a firm that provides RICS residential and commercial surveying services across England and Wales. At Allcott Associates, Kim and a team of Chartered Surveyors and Structural Engineers are working to improve and modernise surveying practices. By doing so, they hope to benefit both those in the industry and those that rely on it for residential and commercial services. A key goal is to explore best practice for combining expertise across surveying and structural engineering disciplines, in order to increase confidence in the industry and enable clients to have a thorough understanding of their properties.