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

Dunmore & Partners holds a claims-made PII policy. During the policy year, the firm becomes aware that a former audit client, Saltash Ltd, is likely to allege negligence in relation to an audit report signed two years ago, but no formal claim has yet been received. What should the firm do?

The firm should notify its insurer during the current policy period of the circumstances that could give rise to a claim. Under a claims-made policy, late notification or private settlement without consent may jeopardise cover, and changing insurer to conceal the matter would be improper non-disclosure.

  1. AWait until a formal claim is received, because insurers only need to be told of actual claims
  2. BNotify the insurer within the current policy period of the circumstances that may give rise to a claim, in line with the policy termsCorrect
  3. CSettle privately with Saltash Ltd first to avoid affecting premiums, then inform the insurer afterwards
  4. DCancel the policy and buy a new one from another insurer to avoid linking the matter to future premiums

Explanation

Under claims-made policies, cover usually depends on notifying known circumstances during the policy period. Delay may allow the insurer to refuse cover. Settling without insurer consent usually breaches policy conditions, and switching insurers to hide a known matter would be non-disclosure.

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