Your professional indemnity insurance policy covers you for your civil liability arising out of the provision of professional services. Civil liability is your contractual liability, your negligence and your liability under the Competition and Consumer Act.
There are exclusions in all insurance policies and professional indemnity policies do not cover you for pursuing unpaid fees or for defending claims made against you, where the relief sought is for a refund of fees already paid to you.
Pursuing unpaid fees owing to you
If your client has not paid your fees this is a commercial matter for you to address. Your policy will not cover the costs and expenses incurred by you in pursuing unpaid fees. Although your unpaid fees arise out of the provision of professional services, the liability for unpaid fees is that of your client, not yours. For this reason, there is no cover under the policy to assist you in pursuing these fees, nor is there a specific exclusion in your policy relating to claims to recover unpaid fees.
Defending a claim made against you for a refund of fees paid to you
Professional indemnity policies contain specific exclusions for claims made against you for a refund of fees paid to you. Therefore, there is no cover for the costs and expenses incurred by you in defending such a claim.
An example of such an exclusion is as follows:
“The Insurer shall not be liable for any Claim(s) or loss (including Costs and Expenses) arising from or in respect of or as a result of any action for a refund of professional fees whether by way of damages or otherwise”.
Generally speaking, refund claims are made by dissatisfied clients who justify the claim by alleging a breach of professional duty in that you did not provide the services as contractually agreed or you were negligent in performing them.
This usually happens at the end of a project or in response to a claim by you seeking to recover unpaid fees. If you end up actually refunding fees, this will be for your own account and not covered by your insurance .
Please note that sometimes, shrewd clients make a claim for a refund as a strategy to force you to reconsider your claim for unpaid fees, as they are aware that professional indemnity policies do not provide cover for the costs and expenses incurred in defending refund of fees claims.
We suggest that you interim bill, wherever possible, to avoid finding yourself in a situation where your clients refuse to pay fees to you and then when you pursue them, make a claim against you for a refund of fees already paid. In our experience, it is often the final tax invoice that clients refuse to pay. If your final tax invoice is for a small amount, you will at least be in a position to consider writing it off rather than incurring substantial, often unrecoverable, legal costs pursuing those fees and defending the inevitable claim for a refund of fees that eventuates.
Finally, you should not ignore requests for a refund of fees, but rather contact your client and endeavour to reach a resolution with them.
National Claims Manager, Focus