Professional Indemnity Insurance Is Not Designed to Protect Claimants
PI insurance is not designed to protect claimants!
There. I said it!
We often hear PI exists to protect the public, the client or consumers.
Consumer Affairs Victoria website says:
“Professional indemnity insurance (is) insurance carried by a member of a profession or industry body such as a prescribed building practitioner or building lawyer. It is designed to protect the consumer from loss owing to acts or omissions by the professional acting on his or her behalf.”
But that isn’t what the product is designed to do.
PI insurance is fundamentally a defence mechanism. A pot of money to fund lawyers, experts and ultimately damages - but that’s a long road to damages.
So listen up regulators:
- ASIC
- Building and Plumbing Commission
- Consumer Affairs Victoria
- Australian Financial Complaints Authority
A claimant might have a strong claim and the insured even privately agree but after a claim is filed they lose control.
The insured must not admit liability or agree a settlement without insurer consent.
The insurer appoints defence lawyers and the commercial objective is NOT to resolve the claimant’s problem but to manage risk.
That can produce a surprising dynamic for an insured first claiming.
Requests for information…
Experts…
Pleadings. Particulars. Proportionate liability defences.
Joinder.
More experts.
Eventually mediation.
And often it is not until the prospect of a trial becomes real that an insurer puts real money on the table.
Why?
Because until then, the insurer can continue to defend the claim.
This creates a problem that regulators need to confront.
Take a building, insurance or professional liability claim worth $150,000–$250,000.
The parties can spend that amount easily getting to trial - so what incentive does an insurer really have to settle early? They don’t!
If the insurer has any basis of denying the claim - spend money defending is a far more rational approach.
Our dispute resolution systems need scrutiny.
In Victoria, domestic building disputes are forced through a free conciliation process designed to resolve matters without expense. That sounds sensible.
But when a PI insurer is sitting behind the respondent, the “free” dispute resolution just adds costs.
PI insurance makes a legitimate claim harder to resolve.
I’m not saying PI has no value to claimants it can fund a defence and damages but claims less than $150,000 - $250,000 are uneconomical.
PI insurance is not designed to protect claimants.
AND this is a conversation regulators need to have. Consider:
-
limiting the amount of the sum insured allowed for defence costs;
-
obligations on insurers to encourage earlier resolution where liability is apparent.
At present, we have a system where the claimant is mislead:
“Don’t worry the professional has PI.”
This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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