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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability

Brightwell LLP renews its PII policy each year. During the year a partner learns that a client's lender may sue the firm over a prior-year audit opinion, though no writ has been issued. The policy is on a claims-made basis. What is the most appropriate action?

The firm should promptly notify the insurer of circumstances that might lead to a claim. Under a claims-made policy, timely notification preserves cover. Waiting, settling without consent, or concealing the matter at renewal risks the insurer repudiating the claim for breach of policy conditions or non-disclosure.

  1. ANotify the insurer promptly of the circumstances that may give rise to a claim, in line with the policy termsCorrect
  2. BWait until a formal claim is issued, because the insurer only needs to hear about actual claims
  3. CSettle informally with the lender first and tell the insurer afterwards to avoid higher premiums
  4. DSay nothing at renewal so that the premium is not increased

Explanation

Claims-made policies respond to claims or notified circumstances during the policy period. Prompt notification of potential claims secures cover, whereas late notification, unauthorised settlement or non-disclosure at renewal can allow the insurer to refuse cover.

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