A review of Australian Law Reports has struggled to find recent cases of Professional Indemnity insurance claims involving independent Project Professionals or Management Consultants. But it’s not to say that claims don’t happen, rather they get closed out before they reach court.
We know from anecdotal evidence that many professional indemnity insurance claims do happen. They are both real claims and vexatious claims (where the client has a go….because they can). What is interesting here is that the client tends to walk away with something for their efforts.
As an example, an ASX listed company started a $12 million customer improvement change program. The program budget blew out by over 100% to $25 million. Even though the client sponsor and management had fingerprints on every change request resulting in the budget blow out, the client chose to hold the contract project professionals responsible. They did this by making a claim (vexatious in appearance) against the contract project professionals possibly without the intention to reach court, which could muddy their reputation and brand. In order to settle the claim quickly, every contract project professional or provider agreed to pay “remediation” and/or provided scope extras at no charge. For the project professionals, in addition to the client settlement, they also would have incurred legal fees at $700+ per hour, stress and opportunity cost of dealing with the claim rather than generating revenue.
For the client, this all becomes very convenient. The Project Professionals keep quiet as they want to be retained by the client and don’t want to be shackled with a bad reputation. Clients keep quiet as they know they could shoulder some of the blame and this is the cheaper and faster way to recover costs.
So if a professional indemnity claim happens, what do you do?
Unlike a $5,000 motor vehicle accident claim, professional indemnity insurance claims can run into hundreds of thousands or even millions of dollars. As a result of this, whenever there is a professional indemnity claim or even a “sniff of a claim”, insurers move very fast. And it’s in their interests to do so.
This will sound like an inflight announcement but in the unlikely event of a claim (or suspicion of a claim), contact your insurance provider immediately. They are trained to deal with these events and guess what, you’re paying them to do exactly that. In fact you are paying your insurance for this exact moment.
Contacting your insurance provider should happen before you contact a lawyer. Most professional indemnity policies cover legal costs but only if your insurer has approved them first.
Also you should avoid responding to your clients claim as it may impact the outcome. Again, as the expert, your insurance provider is there to take over and manage this process.