Safe Insurance or a Future Street Fight - Part 2

My previous article ended with a fight about to ensue after a claim was put in for professional indemnity insurance. We finished off with your claim being in the hands of Specialist Lawyers and the fact you are in a white collar street fight. These Lawyers are specialists in their area of the law and slowing things down. They are the wolf and you are little red riding hood. I’ll forgive you if you think I’ve plagiarised the little red riding hood and the wolf fable. I promise I’m not doing that and will take on any lawyer wielding a copyright document from the 10th century when the fable was first released.

Ok got that paranoid defensive argument documented, lets move on. So we left off in PI-1 with you putting in a claim for PI Insurance. The shiny salesperson who sold you the insurance has flicked your claim to a set of specialist lawyers. The Wolf has entered the story.

So lets work through a good example, read it and weep.

The Lawyer, lets call him Theo, gets in contact with the claimant (you) and asks the facts of what has happened. He’ll remind you that this insurance is in place to protect against the clients suing so DO NOT ADMIT any mistake to the client. Theo is reminding you that the client is now the enemy and if the client doesn’t point the finger then there is no claim. So lets have a think about who that client may be. Now many small business people who’ve built a professional services practice have built it via their personal networks or local community. If the business grows it means that your client base will start to fill with your initial clients’ friends, families etc. Based on this the client is going to be very closely connected to you and more than likely ensconced in your private life. So lets call the client that Theo is saying to ADMIT NOTHING to Jack.

Theo and Jack are present we just need to bring this fable fully to life with the Insured Bunny. Lets call the Insured Bunny (claimant) Don and lets say he is a running a white collar small business. Don put in the claim to the Insurance Company because he discovered he’d made an honest mistake that will likely cost Jack $100,000. Theo reminds Don that he should not admit a thing to the client. In street language Theo is saying “so do you feel lucky…….punk?” Then Theo straight out asks the question to Don. “You haven’t admitted any mistakes have you Don?” Now Don is an ethical small business person and so he’s left in a quandary.

The multiple choice question is what’s the ethical thing for Don to do:

1. Admit no mistake to Jack who has been a friend of Don’s for 20 years. Jack maybe unwittingly out of pocket $100,000. Don and Jack’s relationship suffers irreparable damage that is likely to spread to other clients and friends. The Insurance company doesn’t have to payout. The Lawyers get their fees or are they on commission for success?
2. Suggest to Jack that he has made a mistake and ask Jack to sue him because it’s the decent and right thing to do. Don then tells Theo that he has admitted a mistake to the client. Theo tells you that there is no valid claim based on the fine print in the PI Insurance contract at clause 28, a)iii)c)iv.
3. Neither A nor B, Don will choose his own street smart way of dealing with this that cannot be written here.

If you answered C you are street smart, you’re rat cunning and Don and Jack maybe looked after with the policy but Don still has a long way to go in the many rounds and long fight with Theo.

So Don’s survived the early rounds, he’s not getting much sleep and then Theo chimes in a few weeks later with a myriad bunch of questions which are designed to trick and cough up the wrong answer (the Right Answer for the Lawyer). If Don makes it through these Theo will then, go away, ask for more answers, slow the whole process down again and not return calls. Theo’s job now is to hold onto the payout, try and get the amount down and delay it as long as he can. You see Theo and his bosses make money by keeping yours in their pockets (read money markets) and want to try and frustrate you by completely dropping away the service. This will go on and on and then Don hopes to finally get his payout to settle Jack’s $100,000.

Don ends up weary, punchdrunk and has been Theo’s playtoy for a number of months. He’s been in a long, bruising, white collar street fight and that is real life professional indemnity insurance.

So with a ghastly story like this which is not uncommon, what should you do?

Here is my advice:

1. Always take out professional indemnity Insurance if you are running a professional services business. Asset Protection must be a single minded goal and business insurance is a key piece. This fable should not deter you from putting insurance in place.
2. Get some street smarts, start by watching Fight Club.
3. If you need to put in a claim, heighten your senses, you are about to enter the ring. Don’t take a chill pill, take a steady stream of them because you’ll need the patience of Jobe.
4. DO NOT have any growth assets in your name when running a business.

Pat Mannix, Partner, Paris Financial

Note: This scribe does not encourage drug use he’s trying to emphasise the stress of an insurance claim. The names in this article are purely fictional. Any names synonymous with real life are in the imaginative minds of skilled lawyers.