This is the second in a series of articles on mediating professional negligence disputes, an area in which I have specialised for many years.
In this article, I focus on professional indemnity insurance (‘PII’). PII is widely available and is compulsory for many (albeit not all) professions, so it saves time and avoids misunderstandings if everyone involved in mediating a professional negligence claim is aware of the insurance context.
Professional indemnity insurance
PII usually provides cover for claims of alleged negligence, or breaches of a contractual duty of care akin to negligence, when providing professional services. Typically, cover is available - subject to policy terms and limits of indemnity - for defence costs plus any damages and costs payable to a successful claimant.
Although a professional’s T&Cs or website may refer briefly to their PII cover, the insurance contract itself and any associated correspondence is normally confidential between the professional and their insurer(s), so a prospective claimant may have limited information in this area.
Claims made
PII usually operates on a ‘claims made’ basis, ie it is the policy in force when the claim is first made that should respond to a claim, rather than the policy in place at the time of the alleged error. Also, the insured may be able to trigger an earlier policy response by notifying their insurer as soon as they become aware of circumstances likely to result in a claim.
Bearing in mind that a civil claim may be brought many years after an alleged error, the entity which carried out the work (and which is thus the prospective defendant) may not be the same as that which took out the relevant PII insurance. PII policies typically cover not just the present entity and its people but also prior practices and staff (as defined in the policy).
Open market insurance, MTCs, mutuals and ARPs
Most professionals obtain their PII cover from open market insurers. They may have just one insurer/policy or, if they need a higher level of cover, this may be topped-up with excess layer insurance from other insurers. Insurers may also reduce or lay off their exposure by co-insurance or reinsurance.
The primary layer insurer usually takes the lead when responding to claims, but other insurers may become more involved, especially for higher value claims. It is important to bear in mind that the policy terms for other insurances may not follow those applicable to the primary layer.
Where PII cover is compulsory, the relevant professional body or regulator usually publishes the required Minimum Terms and Conditions (‘MTC’) on their website (see, for example, https://www.icaew.com/regulation/professional-indemnity-insurance and https://www.sra.org.uk/solicitors/standards-regulations/indemnity-insurance-rules/ ).
Some professions have a mutual insurer for all members of the profession (eg https://www.barmutual.co.uk/insurance-cover/terms-of-cover/ ) or an assigned risks pool ('ARP') which insures those unable to obtain open market insurance (eg https://www.rics.org/uk/upholding-professional-standards/regulation/regulatory-support/professional-indemnity/assigned-risks-pool/ ).
Representation and attendance at mediation
Where there is an underlying PII policy, the professional and their insurer will often (but not always) be represented by a law firm on the PII insurer’s panel. The same lawyer is able to act for both insurer and insured because they share a common interest in responding to the claim in accordance with the PII policy.
Nonetheless, I think it's important if at all possible for the professional firm and their PII insurer to have someone who understands the case and has appropriate settlement authority to attend the mediation (whether in person or remotely), because:
Insurers and insureds have their own distinct perspectives and focus which must be taken into account;
They can both offer unique insights on the background and issues, and deal with any new issues which arise in the course of the mediation;
Their presence reassures the claimant that they are fully engaged and committed to the process – which in turn builds the trust on which any eventual resolution is likely to be built.
Coverage issues
If a professional and their PII insurer disagree over policy coverage or claims handling, they usually try to resolve the issue at the earliest opportunity before embarking on mediation (PII policies often include a mechanism to deal with more intractable coverage issues by obtaining a binding expert opinion or arbitration).
On rare occasions, a coverage or claims handling issue emerges for the first time at mediation. This can be tricky because the defence team may be unable to agree a common position but the issue cannot be disclosed to the claimant team.
In my experience, an emergent coverage issue won’t necessarily derail a mediation – but claimants need to be patient, and the defence team must work hard to resolve it. An understanding mediator can be vital in keeping the process on track and moving it forward once the coverage question has been resolved.
A few final words of caution…
It is important to bear in mind that the mere existence of PII cover and any applicable MTCs is no guarantee of the actual amount available to meet a meritorious claim, which will also be affected by factors including:
The scope and limits of cover specified in the insurance contract(s) – a policy may provide more extensive cover than any applicable MTC and may limit/exclude cover in some situations;
Other claims against the professional – this may affect whether the limit of indemnity or an aggregation clause effectively caps the amount available to meet the particular claim;
Whether there are grounds for the insurer to decline cover – even where there are MTCs, a person who has committed or condoned fraud or dishonesty, for example, is unlikely to be covered;
The insured’s ability to pay any uninsured claim and/or other sums payable by them under the terms of the policy in respect of an insured claim (eg excess/deductible); and
The PII insurer’s ability to pay – most PII insurers are financially stable but there have been (mercifully rare) instances of insurer failure in the past.
Further information
In my last article on mediating professional negligence claims, I considered the central importance of trust in professional relationships and the implications for claims against professionals; the vexed question of ‘equality of arms’ and the place of mediation as a neutral space for resolution; and the judicial drive towards mediation and ‘alternative’ dispute resolution as an adjunct to the court process.
You can also find earlier articles on preparation, timing and alternatives for mediation of commercial disputes more generally here.
If you would like to discuss how I may assist by mediating a professional negligence or other civil claim, please email or call.
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This article is for general guidance only, it must not be relied on as legal or other professional advice. Anyone engaged in a civil dispute should obtain their own legal and other advice specific to their circumstances and the applicable law at the relevant time.
© Duncan Crine Mediation Limited 08.07.2022
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