Prompt Notification

“If in doubt, shout” ‐ the importance of prompt notification of claims and circumstances!

October 2008

Most professional indemnity insurance policies state that it is a condition to any indemnity that an insured must promptly notify insurers of claims which they first become aware of during the policy period. At the same time any prior known claims or circumstances which an insured is aware of prior to renewal are generally excluded under the current policy.

Whilst the Insurance Contracts Act 1984 and continuous cover conditions in some policies can give some protection to insured’s against late notification and / or non‐disclosure of a claim or circumstance, it is important that insured’s are aware that they could still end up having to bear a higher policy excess than would have been the case if prompt notification had been made to an earlier policy. Furthermore, it is also possible for the indemnity provided by underwriters to be reduced to reflect the prejudice that has been caused, as a result of the late notification.

On a more practical basis there is also a direct financial effect arising from late or delayed notifications as many valuable working hours can be lost by insured’s, brokers and underwriters in dealing with policy coverage disputes. Such disputes can also result in significant legal costs being incurred by underwriters and insured’s and even after resolution of a policy dispute relationships between clients, broker and underwriter can be irrevocably damaged.

Of paramount importance when dealing with these matters is the broker’s role in making their clients (the insured) aware of what constitutes a “claim” or “circumstance” under the policy which they are advocating their client purchase. It is one of the brokers’ main roles to make their clients fully aware of the notification provisions of a professional indemnity insurance policy and to facilitate an understanding of the importance of prompt notification and the insured’s rights under Section 40 (3) of the Insurance Contracts Act 1984.

For the avoidance of any confusion perhaps brokers should communicate the golden rule to their clients of “if in doubt, shout”, i.e. if they are at all unsure about what or when to notify they should discuss the matter with their insurance broker at their earliest opportunity. Underwriters in general prefer to be told about everything even if in some instances it is not relevant, as opposed to not being told at all.

A proper understanding of what and when to notify and adherence to the notification provisions of their professional indemnity insurance policy should form part of any insured’s risk management procedures throughout their business activities. Where possible insured’s should be encouraged to assign this task to specific individuals or departments to encourage reliability and accountability. This should also maintain effective lines of communication between themselves, their broker and their underwriter which can only lead to stronger relationships and less costly and time consuming disputes between all parties.


DCS are a specialist claims management company providing tailored claims solutions to a variety of clients throughout Australia and the UK and are responsible for the management of London Australia Underwriting’s professional indemnity, directors and officers and financial institution claims.”