Complaints and Claims

At a recent lunch with inhouse lawyers in the insurance industry, one person who used to handle lawyers' professional indemnity claims shared with us how they often learnt of potential professional indemnity claims for the first time from the third party's lawyers rather than from the insured themselves.

This is an indication of two problems, firstly, that lawyers often do not realise that they have a claim on their hands with all its attendant issues and, secondly, that they are often very poor at documenting and reporting a claim.

Considering that proper claims and potential claims reporting is an important term in any professional indemnity insurance policy, it is certainly a matter that requires more careful consideration.

In actual fact, there is really no difference between a complaint and a claim. In both situations, an underlying cause has resulted in a 'risk event', whether the occurrence is a complaint or a claim is often a matter of luck. For example, what happened may be that a client suffered a loss because a claim could not be pursued due to an important date being missed.

A risk event should, therefore, be analyzed at three levels:

1. What happened?
2. Why did it happen?
3. The underlying causes, that is, how did it happen?

In managing operational risk, firms should have a clear procedure for dealing with claims and complaints. The procedure should cover:

1. handling;
2. recording;
3. analyzing the cause;
4. remedial action;
5. reporting; and
6. follow-up.

The record should contain the following information:

• the name of the complainant/claimant;
• the department concerned;
• the date of the incident;
• why it happened;
• whether the firm was wholly or partly to blame;
• the amount claimed (when known);
• the loss to be borne by the firm;
• the member of staff alleged to be responsible for causing the risk event; and
• whether similar conduct by that person could have given rise to similar problems in the past.

Risk events should be analyzed to establish the underlying cause. Once this has been done, steps should be taken to:

1. review past work by the fee earner (if relevant);
2. devise ways to avoid recurrence;
3. identify those responsible for taking avoidance steps; and
4. set time scales for remedial action.

Quick and clear reporting is necessary for the firm to fulfil its obligations under its professional indemnity insurance. More importantly, however, it ensures that management is aware of risk events and is able to take steps to contain the problem and minimise the risk of recurrence. This is essential, in order to manage the firm's professional liability exposure.

Stanley Jeremiah
Goodwins Law Corporation