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Professional Indemnity Insurance: A Guide For Pastors

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In today’s social and politically correct climate, the unchanging word of God can be confronting and unsettling for many people. Have you ever found yourself worried about what you say, how you say it, and how it is received by those who listen? If you have, you’re not alone. Pastors and leaders today are feeling the increased pressure to tread lightly when it comes to the firm words of the gospel, lest they cause offence or face a lawsuit for simply preaching the word of God.

Regardless of years of experience, or education, we know you are human and that mistakes happen, and that misunderstandings can occur. Especially more now as people are taking offence and pursuing legal action and seeking compensation for those offences. Even if you feel you are simply teaching God’s word or providing counselling, you could find yourself on the end of a claim. If the other party believes it has directly caused financial loss, injury or damage to their lives, they can pursue action against you.

In today’s world, it is essential for church leaders and ministers to ensure they have professional indemnity insurance for this exact reason. In the past, the term “professional” was reserved for practitioners such as Doctors and Lawyers, but it is now used in various capacities, when describing roles like Human Resources Consultants, Counselors, Engineers, and even Pastors. Anyone who is perceived to be a professional and seen to be giving services or advice to others should be protecting themselves under a Professional Indemnity Insurance policy. 

How Does A Professional Indemnity Policy Work?

Professional indemnity insurance covers the cost of compensation to a claimant and the legal costs and expenses associated with investigating the alleged breach. It will also pay for your defence costs if litigation is required to resolve the dispute.

Most Professional Indemnity policies are provided on what is known as a “claims made and notified basis”. This means that any fact, situation or “circumstance” that you become aware of that could result in a claim must be notified to the insurer within the current policy period in order for the cover to apply.

For example, Pastor John has provided advice to an individual during a Counselling session in May 2013. In September 2014, the church receives first correspondence from the complainant stating that the advice provided during the session was inappropriate and negligent. They are claiming that as a result of following the advice given to them, they have endured severe hardship and loss. In this case, the policy in effect at the receipt of the first notification would be the one to react to potential claims, even though the alleged act error or omission occurred in May the previous year.


So, What Constitutes A “Circumstance”?

Generally speaking, a “circumstance” would be regarded as a set of facts that would indicate to an organisation that a claim could occur at a later date. This could include a situation where wrongful advice has been given to a client, even before the client has realised it, and regardless of whether you believe their claim is correct or valid.

Regardless of how you view the facts of a claim, and whether or not you believe a claim against you is justified, you need to notify your insurer immediately. 

A Professional Indemnity Policy will often still provide a level of coverage for legal expenses to defend a claim against you, even if the allegation is unjustified and there is no actual merit to the claim.

Why Notifying Your Insurer Is Essential

Delaying the notification of a claim or circumstance can jeopardise your Professional Indemnity cover. If you don’t notify your insurer as soon as you’re made aware of the circumstance, they may not be able to respond in an effective manner. This is because delaying notification often results in increased costs to the insurer, which can bias the insurer’s position on whether or not to cover the claim. This is referred to as “prejudice” and can significantly impact the way your claim is processed. To avoid this prejudice from occurring, you should immediately contact your insurer to let them know of any potential claims arising.

Your Insurer Can Help!

You can trust that Insurers are experts on claims and how best to manage them. Their teams are made up of specialists in claim administration and will assist with moderating any claims against you. It is in the best interest of both you and your insurer to resolve a claim on the best achievable terms. Making sure you involve your insurance provider from the beginning will ensure the financial, managerial and reputational impact of the claim on your church or ministry is minimised.

So Why Don’t People Notify Their Insurer?

There are a number of reasons people think they’re better off not informing their insurer of a potential claim.

1. “We thought it would go away”

Sometimes this is the case, but it is not the norm. Adopting the stance of trying to resolve the issue in-house often ends with a claim escalating, and legal proceedings commencing. If you have not notified the insurer before this stage, your cover has been prejudiced and may result in the claim not being paid. However, if you inform your insurer of a potential circumstance and it does not go any further, your insurer will simply close the file on their end.

2. “We haven’t done anything wrong, and we do not believe this claim is justified”

The majority of Professional Indemnity claims are made up purely of defence costs, and these can often run into thousands of dollars. A claim can only be deemed unjustified after a judgement in favour of the insured is handed down. That means, unfortunately, you don’t get to decide if it is warranted. Regardless of whether a claim against you is warranted or true, it is essential that any complaints or circumstances are notified to your insurer immediately for your own protection. 

A claimant is basing their claim on their personal circumstances and can contribute to a lengthy claims process. It is in your best interests financially and for your reputation to engage with your Insurer from the offset to protect yourself from a costly and drawn-out resolution.

3. “The claim is probably less than my excess”

Even if a claim turns out to be lower than the cost of your excess, it should still be raised with your insurer straight away, because it’s difficult to determine what a claim will cost at the beginning of the process. There will be a variety of facts that surround the circumstance leading to the claim, including the personal circumstances of the claimant, and you may not be aware of all of these components. It is safer for you to notify your insurer and ensure you are fully protected than it is to assume the cost of the claim and be caught out of pocket significantly.

ACS Financial charges its excess on Professional Indemnity policies on a “costs exclusive” basis. Costs exclusive excess means you do not pay any excess towards the legal and defence costs, but only pay the amount of the excess towards the settlement of any claim. That means if a claim is found to have no merit, you do not pay excess on your claim for simply defending it. Your excess would only apply if you were found to be negligent or to have contributed to the claimant’s suffering.

It is important that you read your policy schedule and relevant product disclosure statement carefully to determine if your excess is “costs exclusive” or “costs inclusive as not all insurers will provide you with this option.

In the event that a claim or circumstance does go away on its own, or is resolved under the excess value, then your insurer will simply close the file. However, if the claim does escalate and costs more than your excess, but you have not notified your insurer, you could be left with an uninsured claim. The risks of not notifying your insurer far outweigh the any perceived benefits.

4. “Notifying will mean that my premium will go up”

This isn’t black and white and it isn’t always the case. Whilst your claims history is taken into account during the rating process for your insurance and protection package, it is not the ultimate deciding factor. We understand that many notified claims will not always result in actual claims arising. Insurers will consider the position on each notification and make their assessments accordingly. Generally speaking, notifying your insurer as a precaution is not likely to significantly impact your premiums, but it is important to note that the cost of being without Professional Indemnity cover as a direct result of failure to notify of a potential claim will have a significant financial impact on your organisation. 

So, talk to us! If you have received a claim or become aware of a circumstance which may result in a claim being brought against you, tell ACS Insurance Services or your insurer immediately. If the claim is justified then your insurer will help you resolve the complaint with minimal impact to you. If a claim is without merit, then your insurer will help you work out how to correctly respond to your complainant, and if necessary help you find the right legal assistance to support you throughout the claim.

So, What Should I Do?

Professional Indemnity Insurance is essential for Pastors and ministers, but it only works if you notify! Don’t try and diffuse the situation on your own. We’re here to help you work through the claims process. Let our expertise be to your benefit. For further information on the services ACS Financial can provide, please visit our website or contact us on 1800 646 777. Our team are ready to help!

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