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Normally when a problem arises in a construction project the natural and commercially sensible approach is to try to resolve it.
In any project there are issues which may result in a claim if not addressed promptly. It is good practice to respond in a way which mitigates potential problems before substantial damage or cost to the client or another party arises. A potential claim may be averted or resolved by negotiation, revisions of documents or plans, etc.
You should however be aware that professional indemnity (PI) policies direct the insured to not admit or compromise a claim without the written consent of the insurer.
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Notifying the insurer
While taking or negotiating any steps, inferences may be made about your responsibility or liability for the cost of rectification/necessary change. At this point, you need to consider whether you should notify the circumstance to the insurer.
Good practice is, when in doubt, notify.
Choosing not to notify could leave you wholly uninsured for the circumstance if despite your best negotiating efforts, it later develops into a claim. PI policies require prompt notification of claims and circumstances that may give rise to claims. While you may think you/your practice is not at fault, or the amount for which you would be liable if you were at fault is less than the excess under the policy, construction issues can give rise to liabilities not contemplated during the immediacy of the issue and the consequences of only having a minor liability may result in a not insubstantial claim being made against you. Your opinions on liability should not be a factor in deciding whether you should or you should not notify a matter to the insurer.
Identifying a claim or circumstance from which a claim may arise
While the process of notifying a claim or a circumstance is essentially the same, it can be helpful to identify the difference between them. When filling out a claim form you may be asked which of the two possibilities you are notifying, noting that claim is defined in the policy wording.
A claim is a demand that is made on you/your practice alleging that you are liable to compensate a third party for its loss.
The allegation may be in the form of a legal notice informing you of litigation against you, or a written communication in which an allegation is made about you/your practice’s liability, or a threat, verbal or written, to take legal action against you.
Benefits of notification
As noted above, failing to notify a claim can compromise your insurance cover. There is a commonly held concern that notifying is likely to result in increased insurance premiums. The number of notifications will not necessarily increase premiums, although substantiated claims, that lead to a payout, will cause the insurer to reassess the risk presented by you/your practice and is likley to impact the premium. Early notification can avoid claims eventuating as it allows insurers to:
- promptly investigate the merits of claims made against you or your practice
- provide you with prompt claims management advice and guidance and if appropriate, engage experts and/or solicitors to investigate and/or defend the claim
- resolve the claim before the claimant incurs substantial legal expenses which it will seek to recover from you.
Checklist for what to do about a claim or a circumstance from which a claim may arise:
- promptly notify the insurer or your insurance broker in writing
- avoid volunteering that you have notified the insurer and do not provide details of the insured amount as this may raise expectations of how much can be recovered from you
- avoid admissions of liability or responsibility or agreeing to pay some or part of a claim unless approved in writing by the insurer
- liaise promptly with legal advisers appointed by the insurer, as prompt action may be necessary
- be candid with these legal advisers, but once in communication with them, do not communicate either verbally or in writing with third party about the issue. Court rules of 'discovery' of documents will require that any written communication with any party other than the legal adviser will be available to the parties to the litigation.
- do not make any admission of liability as this may compromise your defence of the claim and your insurance cover.
Disclaimer
This content is provided by the Australian Institute of Architects for reference purposes and as general guidance. It does not take into account specific circumstances and should not be relied on in that way. It is not legal, financial, insurance, or other advice and you should seek independent verification or advice before relying on this content in circumstances where loss or damage may result. The Institute endeavours to publish content that is accurate at the time it is published, but does not accept responsibility for content that may or has become inaccurate over time. Using this website and content is subject to the Acumen User Licence.