Updated Feb 2017Following receipt of an NZACS Annual Report, a member asked “what control NZACS has over practices which are repeat offenders (the enquirer’s words) and why don’t careful practices that haven’t made claims, get the equivalent of a no claim premium rebate?” These questions have been in the mind of other members as well.Before answering these questions, it is important to appreciate that a claim notification does not necessarily result in a pay-out by the Society’s insurer.The nature of Professional Indemnity Insurance is different from disaster and life insurance policies, which pay out upon the event. P.I. policies respond upon a “claims made” basis as the policy must be in force when the events which might lead to a claim become first known, or ought reasonably to have been known to the insured. For example, the policy responds when an insured member first becomes aware of design and/or construction defects within a building of his/her design even though it may be some years before the consequences of the defect manifest themselves into a claim against the architect. Hence the importance of early notification of potential claims.Each year NZACS publishes the number of potential claims registered during the previous year. Commercial sensitivity prevents a detailed breakdown of the claim settlements. Not all of the notifications turn into a claim through the Society or against its insurer. Some notifications are precautionary only to register the event; some notifications are resolved by the member firm within their excess. A majority involve a nil or relatively minor dollar-value settlement, but legal costs may still be significant; a few have involved payments in the hundreds of thousands of dollars. Often the plaintiff’s claim is inflated and even if not, there are offsets or reductions which become apparent when a fuller and balanced view of the circumstances is revealed by investigation of the documentation and/or at the site. Some claims are insignificant; others are substantial and not necessarily the product of larger firms who undertake large commercial scaled projects. Some residential-scaled projects have resulted in substantial claim payoutsLarger practices with high volume/value outputs pay a higher subscription, based upon their gross fee income. Larger practices often carry higher levels of insurance cover at an increased subscription; often carry a self imposed higher self insured excess; and generally have a wide range of technical expertise within their own offices. So on balance, no particular practice type or size is favoured or penalised under the subscription-setting policy of the Society.Where a particular member firm is observed by the Claims Committee or Insurers to represent a greater risk to the Society, the Claims Committee will intervene at an early stage, or will counsel the member concerned. Further steps available to the Insurer include: raising the member firm’s level of self-insured excess, placement of a special condition upon the practice, and/or increasing the premium payable.The Claims Committee and Insurance Broker are therefore in a position to ensure reasonable equity amongst the membership of NZACS. Perhaps premiums appear less expensive after an experience of a claim and the ensuing process!For those who seek a “no-claims” rebate, here is the answer. Other forms of (“occurrence-based”) insurance are more approachable to providing a “no-claims” rebate. Unfortunately for architects, the “long-tailed” nature of PI Insurance claims does not support such an approach, especially within a group-insurance scheme. Continuity of cover is important for those who are insured. NZACS sees this objective as one of its paramount policies.Here is a cautionary tale. An architectural practice had been a member of NZACS since its inception in 1970, and had no occasion to register a claim notification with the Society, or a previous insurer. When approaching retirement, the member firm was the subject of a claim which involved one of the higher payouts from the Society’s insurer. Regrettably, a claim made in the closing stages of an otherwise unblemished professional career is by no means unusual.Before we become too self-assured, observation suggests that the consequences of a claim have as much to do with the nature of the plaintiff as they do to the negligence of the architect.Since the inception of NZACS, all Board members have consistently said:- “there but for the grace of God, go I”.