Communique 1994
Reviewed June 2009, Feb 2017The basic purpose of any insurance policy is to transfer risk from the individual to the larger population of collective policyholders through an insurance company which accepts a commercial profit or loss. That is, all insured contribute in a predetermined way to the particular loss or risk as defined in the policy. The processing of claims involves administration costs which are not insignificant. That is one of the reasons why insurance policies include an excess or self-insured first layer - for example your motor vehicle’s insurance policy. Another reason is to impose some responsible self discipline upon the policy holder. Experience indicates that most claims fall at the lower end of the cover, some what above the excess, and that few claims reach the maximum insurance cover. Some exceed the level of cover and in effect they have self insured their own loss above the insured sum.Some insurance claims are quite readily quantifiable, for example vehicle damage or fire damaged buildings which are repaired on the basis of competitive tenders. PI insurance claims often involve more intangible sums which demand technical quantification for example, conflicting expert opinion and legal argument.In most PI claims the insured is also involved with a potential loss of pride and goodwill, both of which are uninsurable, as is the preparation time and attendance at court should this be necessary to establish the degree of negligence.An aspect of PI insurance which often concerns members is that of seemingly spurious claims against their practice. That is where a writ is served but it is clear that the architect has a valid defence. The court hearing to prove the architect’s innocence will not be without cost. The lawyer’s pre-trial preparation and trial time charges are recoverable under the insurance policy. The architect’s time involved in the pre-trial preparation of technical matters and evidence, and trial attendance are not covered by the NZACS, or any other insurance policy.So we have a situation where to prove innocence will cost the architect time, money, and their appearance in court for cross-examination. This is totally unproductive and distressing for the architect. On a purely commercial basis it is often better to negotiate an out of court settlement without an admission of liability.But why should the architect settle when he is plainly innocent? When court action is initiated by the plaintiff’s writ, the defendant has no choice but to respond to the judicial process. Failure to provide a statement at defence will result in victory for the plaintiff, together with an award for costs. You are forced to play the plaintiff’s game according to predetermined legal rules.With insurance, the insurer takes over all the rights and duties of the insured including handling the defence and the right to settle where this is justified commercially. Occasionally in their view, the member’s indignity over the spurious claim demands court justice to clear their name. But justice is not always what it seems, and occasionally uncertain in outcome.Sometimes when the settlement sum recommended falls within the member’s self insured layer, the Claims Committee is accused (wrongly) of expediency at the insured architect’s expense, that is, it is not the insurer’s money, therefore it is regarded casually. The Claims Committee always involves the insured member in the settlement process, and is guided by the member’s best interests first. After all, NZACS is an Architects Cooperative.The Claims Committee has considerable experience in handling negligence claims and has access to good and experienced legal, insurance, and architectural counsel, all in the member’s best interest.