The Gazette 1982

INCORPORATED LAW SOCIETY OF IRELANÓ

Vol. 76 No. 6

July/August 1982

If in Doubt — Notify

I N an age in which the public is increasingly — and j rightly — aware of its right of redress, professional in- demnity insurance is all the more imperative a protection, for both practitioner and public alike. Practitioners may not all be aware of a significant difference which exists, under certain professional indem- nity insurance policies, between the obligation to notify insurers immediately of possible claims which come to the notice of the insured during the currency of the operation of the policy and the obligation to notify such possible claims on the annual renewal of the policy. The wording of at least one of the policies marketed in Ireland imposes an obligation on the insured, during the currency of the annual cover, to give immediate notice to the insurer of any circumstance of which the insured shall become aware which seems likely to give rise to a claim. Policy cover under professional indemnity insurance policies is not continuous and a duty is imposed on every insured to disclose to an insurer all material facts relating to any insurance each time a professional firm applies for renewal of its professional indemnity cover. One of the usual questions asked by insurers, when \ inviting renewal of the annual insurance, enquires whether any principal or partner, after enquiry, is aware of any matter involving any circumstance which has resulted in a claim or which may give rise to a claim against thefirm or their predecessors in business or any of the present or former partners, in respect of liabilities to be covered by the proposed insurance. It will be noted that the words "may give rise to a claim" used on the occasion of the annual renewal are less precise than the words "likely to give rise to a claim" which are relevant during the currency of some policies. The reason for the distinction is that it has been held that every circumstance is material which would influence the judgment of a prudent insurer in fixing a premium or determining whether he will take the risk and that insurers need to weigh up the value of claims they may have to meet before they assess the premium appropriate for the wide policy cover which is given. For this reason, a high degree of care must be exercised on the occasion of the completion of the proposal for the renewal of a policy. An equal degree of care must be exercised during the currency of certain policies in recognising potential difficulties in cases which are likely to give rise to a claim.

There is a natural tendency to defer notifying an insurer of circumstances which may ultimately be cured and in which no claim may, in fact, arise but insurers are well used to being notified of incidents where no claim at all is eventually made and the cardinal principle at all times should be "if in any doubt, notify". The sanctions which the insurers are entitled to impose in the event of non-notification on renewal include the exclusion of a particular claim from cover, or even the total withdrawal of cover, not merely for the claim when notified, but in respect of any claims arising during the appropriate annual period, even where these may have been notified at the time of renewal. It should, in particular, be appreciated that failure to disclose circumstances which may give rise to a claim may wholly invalidate the contract of insurance for the next, or any succeeding, period of insurance. The cover offered varies considerably between the several insurers active in the field of professional indemnity and care should be taken to ensure that the best and most appropriate cover is obtained. Consideration of such matters raises the further important but probably insufficiently appreciated question of the liability of practitioners whose name appears on afirm's letterhead but who are not, in fact, full proprietorial partners. Understandably, getting one's name "on the notepaper" has long been regarded by the younger solicitor as being a significant and most desirable step up the professional ladder; it is seen as an expression of confidence that thefirm or principal is prepared to hold out the individual's presence as an inducement to existing or prospective clients. But such a compliment has, inevitably, its drawbacks. All too few solicitors, anxious to see their names in print on theirfirm's notepaper, consider the practicalities involved. Apart from the obvious necessity of procuring from the principals of the firm a proper indemnity in respect of the firm's liabilities, the non-proprietorial "partner" should consider carefully what may be the consequences of such publicity upon any professional indemnity insurance he may require in his own right later in his career. A non-proprietorial partner, engaged in afirm at a time when a claim arises against that firm in respect of alleged professional negligence, but who subsequently sets up in continued on p. 127