Professional indemnity (PI) claims constitute a critical aspect of risk management for professionals across various sectors. Unlike insurance claims stemming from natural disasters, PI claims hinge on allegations of errors, omissions, neglect, or breaches of professional duty. The claimant seeks to recover financial losses allegedly caused by the insured’s actions.
PI claims necessitate a rigorous process where liability must first be established before quantifying financial losses. This distinguishes them from other insurance claims where the cause of loss may not be contested initially. Handling these complex claims involves a multi-disciplinary approach and integrating expertise from diverse fields to address both liability and financial loss assessment.
Critical phases in PI claims management
Initial discussions and information gathering
Effective management of PI claims begins with comprehensive initial discussions to understand the allegations, contractual obligations and quantum of the claim. These discussions involve all relevant parties—the insured, the claimant, insurers, brokers, and legal advisors—to gather essential facts and assess potential mitigating factors. They are focused on understanding:
- The allegations being made
- The relationship between the various parties (including whether there were any contracts in place which outlined the obligations of each party)
- The basis and quantum of the claim
- Other parties involved in the claim, which may give rise to contributory negligence
- Possible avenues of mitigation
- External factors/business trends that may have had a financial impact on the claimant
Engaging experts for detailed analysis
The complexity of PI claims often requires engaging both internal and external experts. The process involves identifying internal experts such as quantity surveyors, engineers, project managers and business valuation specialists to provide detailed reports addressing liability and financial loss. The external experts engaged may include industry-specific specialists, financial specialists, doctors and other professionals possessing both technical expertise and business experience able to specify what the usual industry practice would be in similar situations.
Loss assessment and quantification
Central to PI claims is the meticulous quantification of alleged losses. The approach includes scrutinising financial data, identifying errors or omissions in the claim and considering external factors that might have influenced the financial outcome claimed by the plaintiff. Examples of further information that that may be required could include:
- Financial data — not only profit and loss statements, but also more regular (monthly/weekly) revenue and expense reports, accounting ledgers, occupancy/utilisation reports, obsolescence reports, wastage and stock ‘shrinkage’ reports
- Business management plans, periodic management reports, copies of board and management meeting minutes, correspondence between the claimant and other relevant parties
- Other records, including invoices, contracts between parties, list of suppliers involved in manufacturing an item supplied by the claimant.
Challenges and settlement strategies
Navigating PI claims involves addressing challenges such as overstated claims and omitted external factors that impact financial losses. Claims of this nature demand a meticulous approach involving detailed analysis, expert collaboration and strategic insights to achieve fair and equitable resolutions that consider all mitigating factors. Commitment to excellence in forensic accounting along with multi-disciplinary expertise is essential to ensure thorough and effective management of PI claims, supporting professionals across various sectors in mitigating risks and protecting their reputations.
Professional indemnity expertise
Our approach to PI claims is founded on a robust multi-disciplinary strategy, integrating forensic accounting, engineering assessments and legal insights to deliver comprehensive solutions. Our team’s collective expertise ensures thoroughness in addressing both liability and financial loss aspects, thereby facilitating informed decisions and effective risk management for our clients.
At Sedgwick, our forensic accounting services team comprises over 40 qualified accountants with extensive backgrounds in audit, tax, insolvency and business valuations. This diversity of expertise enables us to provide thorough analyses crucial for PI claims. Our previous experience, coupled with our work in insurance matters, has given us an understanding of professional obligations and due care. Our insight into the systems and processes businesses have in place also assists with our review of PI claims. We have the expertise to assist with:
- Holding initial discussions
- Requesting appropriate information
- Assessing the quantum of loss
- Providing settlement advice to assist in settling the claim.
Case studies
In a recent case, a client alleged professional negligence by their accountant in a business acquisition, claiming overcharging and failure to advise on legal risks. Our forensic accounting services team conducted a thorough review, examining accounting standards, business valuations and costs incurred, providing critical insights into the alleged breaches with the result that many of the allegations were withdrawn and the amount claimed with regard to others significantly reduced.
In another matter, Sedgwick’s experts from various divisions combined to prepared independent expert reports addressing quantity surveying, projected management and forensic accounting issues to help rebut losses being claimed from construction delays resulting from the provision of allegedly negligent structural engineering advice.
Lastly, our in-depth examination of available information in a matter established not only that unrelated matter charges were being claimed as losses, but also that significant time was spent by the claimant researching and discussing possible remedies, rather than pursuing any mitigation efforts.
If you’re navigating a PI claim or seeking proactive risk management solutions, contact our experts at Sedgwick. Whether you’re an insured professional or handling a claimant’s allegations, our team is equipped to provide tailored support and strategic advice to navigate the complexities of PI claims.
Learn more > contact jillian.pancott@sedgwick.com or emma.turner@sedgwick.com for assistance in safeguarding your professional reputation and financial interests through expert guidance and comprehensive support.
The post A comprehensive guide to professional indemnity claims appeared first on Sedgwick.