What is a claim, what is a circumstance and what is complaint? The distinctions are not always obvious and many people have difficulty knowing when they should notify a particular matter to Insurers.

However, failure to notify properly or dealing with a matter by yourself can lead to serious problems, especially if you prejudice your insurer’s position.

This article attempts to explain what claims, circumstances and complaints are and shows how the professional indemnity policy responds to the different types of grievance a client (or third party) might have.

In addition an explanation is offered of the relevant changes to the standard RICS PII policy which became effective from 1 April 2006.

What is a claim and when should you notify insurers?
Generally speaking, you know when you have a claim. It’s a clear allegation against you/your practice demanding compensation.

It may be in writing; it may not. You may be liable; you may not.

What matters is that you do the right thing by your insurers to make sure cover is correctly triggered so they can start giving you the best defence possible.

Do read your policy and if you are unsure of your obligations, seek advice from your broker or your insurers.

A claim is defined quite broadly but includes –"any demand for compensation or damages from, or an assertion of a right against, the Insured"

If you are satisfied that a situation that has arisen constitutes a claim within the policy definition, you must notify insurers "as soon as reasonably practicable".

This may be a less onerous term than ‘immediate notice’ but you should not delay. Problems arise where delay in notification impacts on insurers’ ability to investigate and gather evidence in presenting a defence.

In the worst cases an impossibly short time is left in which to lodge a proper defence with the court or judgment in default may even have been made against the insured.

If an insurer is denied a reasonable chance of defending the claim due to late notification they will seek damages for the prejudice caused to their position.

Remember that early involvement of insurers will enable them to advise on the best tactical approach to dealing with the problem. This may involve meeting the claimant, mediation, arbitration or simply an exchange of letters.

Litigation is very much a last resort but will be pursued where justified.

One problem with notification concerns claims that arise towards the end of the policy period.

As PI is a ‘claims made’ cover and only covers claims made against the insured and notified in the period of insurance there exists a possibility of claims being made in the last week of cover but the insured failing to notify (usually due to internal communication problems) before the policy period expires.

This is more common in large practices with several offices where the partner completing the proposal is not made aware of the claim immediately.

This problem has been addressed by allowing claims to be notified up to ten days after the policy expires.

As the test of "as soon as reasonably practicable" still applies to notification this extra period for notification would probably only apply to claims received very close to the renewal date.

Nevertheless this should provide comfort to many partners and practice managers who have to contend with last-minute problems.

Circumstances and complaints
If it’s fairly easy to recognise a claim when you see it, a circumstance is a less concrete concept. PI polices have always provided cover for circumstances as well as claims but what exactly is a circumstance?

Well, the new RICS PI policy now includes a definition of ‘circumstance’: "an incident, occurrence, fact, matter, act or omission which might give rise to a claim".

The key word here is ‘might’. Some would argue that anything, in theory, ‘might’ give rise to a claim, particularly in construction projects where disputes are a daily fact of life, so does that mean everything a surveyor does should be notified to insurers as a circumstance.

The answer is no.

A circumstance must have sufficient substance to consider it as having a realistic possibility of becoming a claim. A sensible distinction needs to be drawn between circumstances and mere complaints and vague expressions of dissatisfaction.

The facts of each case will determine whether there is indeed a realistic prospect of a claim and no definitive guidance can be given as to the exact point at which a mere service complaint escalates into a circumstance but the new RICS PI policy requires certain specific information to accompany any notification of a circumstance:

• the name of the potential claimant
• the date of the complaint or work giving rise to the problem
• the financial consequences of the circumstance
• the name of the person who performed the service which is the subject of the circumstance.

It is intended that by providing this information an insured can at least focus on a specific problem for which the financial consequences can be estimated.

Complaints, of course, vary hugely from phone calls chasing delayed information to allegations of impolite conduct.

The question that needs to be asked is – is this a groundless complaint or have we failed in exercising our duties and if so, at what cost to the client.

Complaints must to be dealt with within the framework of the RICS complaints procedures but this should be done with a close eye on the PI notification conditions.

As with claims, circumstances must be notified as soon as reasonably practicable and if you mistakenly deal with a matter as a simple complaint when you should have notified it as a circumstance , or a claim, you risk prejudicing insurers’ position.

Conclusion
Insurers are alive to the commercial pressures that affect surveyors when problems arise, both in terms of senior management time and the possible damage to your reputation if a claim is not resolved as quickly as possible.

So in order to gain the maximum benefit from your PI policy you should make sure that you involve insurers as soon as you are aware of a problem.

If you are unsure whether a matter is a claim a circumstance or a mere complaint it is always best to talk it through with insurers or your broker first. Insurers prefer cautious notifiers to firms that leave it too late to take effective action.

It’s your reputation at stake so make sure you have your PI insurer’s expertise working for you at the outset.