Our experiences of dealing with the defence of claims made against health care organisations and clinical professionals in particular reveal a higher than average lack of awareness of the terms of their insurance policy. Delay in notifying their indemnity insurers of notifiable circumstances or claims, or a failure to disclose information at the inception of the professional indemnity policy can lead to insurance cover being declined or the policy being declared void.
Our opinion is that the market for commercial insurance for the clinical professions is set to grow significantly over coming years. There is a need for insurers and insured policyholders and their brokers to work together to ensure growth is not hampered by any negative perceptions of the insurance market. Accordingly, this article aims to highlight a few areas where better communication and better awareness might improve relations between insured and insurers while providing market insight, to the professionals seeking cover, as to what is expected of them.
Let’s start by stating the obvious – the insurance policy is a binding contract, which should be read and understood by the insured.
The insuring clause
All professional indemnity policies are claims made policies, which means that they respond for the indemnity year in which a claim is made. The insuring clause might also be a hybrid and can refer to a retroactive date that relates to the date of a treatment episode.
The limit of indemnity
What the right level of indemnity is really depends on their work types and the risk environment in which they work.
Conditions precedent – notifications
One of the most common situations where an insured breaches the terms of their policy is where they delay notification of a claim or incident that could give rise to a claim. This typically occurs either during the policy, or before the policy starts.
Before the policy starts the insured will complete a proposal or prop form, in which they declare what they do, what they earn, and what cases are pending or incidents are known about that might give rise to a claim. In insurance we talk of a duty of utmost good faith, which requires the insured seeking insurance to disclose to the underwriter all material information that could have a bearing on the underwriter’s decision to offer terms or the nature of the terms offered.
Failing to disclose something that is known about until after the policy has incepted could leave the insured vulnerable to the insurer declining cover either for that claim, or even worse, deciding that the policy should be deemed void from the start due to non disclosure. While the insured will get their premium back, they are now in a position where on any future application for insurance they will have to reveal they have had insurance declined in the past. That could be extremely prejudicial to their future insurance arrangements.
The Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA) has fundamentally altered an insured’s duty of disclosure in consumer insurances from one of utmost good faith to one that requires the consumer to take “reasonable care” not to make misrepresentations.
Insurers may still insist that consumers provide a fair presentation of the risk, but what is fair will be circumscribed by the scope of the new duty under CIDRA.
The recent case of Bate v Aviva Insurance UK Limited (2013) (the full judgment can be found here, although decided before CIDRA came into effect, looks at the approach adopted by the courts in assessing whether or not there has been a fair presentation of the risk. While it does not relate to a policy of insurance for a clinician, the lessons to take from this case are applicable to such policies.
Mr Bate was an insurance industry loss assessor. He took out insurance with Aviva covering him against loss and damage to his property and contents. Part of the property (the Coach House) was not covered under Aviva’s policy.
On 5 June 2006, a fire occurred at the property.
At the time of the fire:
- Part of the property was occupied by Mr Bate’s brother pending ongoing conversion work to another part of the property
- Mr Bate’s daughter lived in the Coach House, where there were ongoing building works
- Mr Bate was conducting a loss assessor business from one of the converted stables
- A construction company owned by Mr Bate operated from the garage of the Coach House
Mr Bate sought an indemnity from Aviva. He claimed to be a “retail customer”, ie, an individual acting outside his trade, business or profession, in order to avail himself of certain of the ICOB (Insurance Conduct of Business) rules, the relevant regulatory framework at the time. One of them required Aviva to act reasonably in rejecting Mr Bate’s claim, failing which Mr Bate could claim for breach of statutory duty under section 150 of the Financial Services and Markets Act 2000.
Aviva sought to avoid the policy for material misrepresentation and/or non-disclosure (and breach of conditions).
In the proposal form, Mr Bate wrongly confirmed that the property would not be used in connection with any business or profession. The court held that Mr Bate should have disclosed the loss assessor business for a fair presentation of the risk. Mr Bate also wrongly stated that a building contractor had caused fire damage “at a previous address” after it had cut through an electricity cable. This gave a materially false picture because (a) the fire was in a building on Mr Bate’s property and not at a previous address, (b) the cable had been cut through at the very property Mr Bate was seeking to insure, and (c) the damage was caused by his own construction company. The court held that this information should have been disclosed.
The Coach House and garage were not covered under the Aviva policy. Generally, business carried on (or building works) at a neighbouring property are not matters that need to be disclosed. However, these were highly untypical arrangements which the court held was material to the cover because of the very close proximity of the Coach House to the insured buildings (there was a connecting door) and the activities would have resulted in more visitors and activity on site. Accordingly, the business use should have been disclosed.
The court held that Aviva’s rejection of the claim was reasonable under ICOB.
The courts will consider all the circumstances of the case and will continue to investigate whether the insurers have received a fair presentation of the risk. The judge in this case had little difficulty in concluding that they did not. Mr Bate was an experienced insurance industry professional and he understood his obligations on disclosure. He made assertions which he must have known to be false and he failed to disclose certain key documents. It did not help that there was some suggestion that he and his broker falsified documents during the claims process.
It is highly doubtful that the new duty of disclosure under CIDRA would have come to the aid of Mr Bate.
Co-operation and control clause
Most policies contain what is normally called a co-operation and control clause, allowing insurers the right to take control of the defence or settlement of a claim. In addition it is usual for such clauses to stipulate that the insured must co-operate with insurers/their nominated representatives in dealing with the claim. This can include attending all proceedings, assisting insurers in the giving of evidence and whatever insurers may require in connection with any circumstance, event or claim.
What does this mean in practice? Insurers have the right to conduct a case or claim as they see fit. Usually they will try and ensure the views of the insured are recognised and most policies will have a dispute resolution provision so that differences of opinion about how a case should be managed or resolved, can be reviewed. But the dispute resolution mechanism is not there to prevent or delay the operation of the control clause.
It is also important to be aware of the exclusions contained in the policy. Most policies will not cover you for any fraudulent, dishonest or malicious acts. Also fees are not normally covered, so if there is a successful claim for repayment of fees that is not something that insurers would meet.
A professional indemnity policy is designed to provide peace of mind. It is important for an insured to understand the nature of cover, the terms and conditions and relevant exclusions in the policy. Clear wording and plain English are necessary in the documents making up the proposal form and any key facts and information provided to the insured about the policy.