So something has gone wrong on a job or project you’ve done, either from works done recently or even from a job completed years ago. You’ve received an unpleasant letter telling you that you’re responsible.
What you’ve just received from your former client or subcontractor – the claimant – is called a letter of demand. It can be a formal letter, or just a simple email that names you as responsible for a specified incident, and an associated debt. It may be addressed to your company, or it could be sent directly to the individual they think has caused the damage.
What do you do now?
Step one: don’t ignore it
We often get panicked phone calls from clients who have ignored a letter of demand until things escalate, by which point we don’t have many options left to defend against it.
Whatever you do, don’t ignore a letter of demand – it won’t just go away. The next stage after a letter of demand is a notice of intention to sue, and ignoring that usually results in a default judgement against you in court.
Receiving a letter of demand will probably come as a shock, and it might even be the first time you have heard about an incident. You might receive it months or even years after the job it refers to, and your first instinct might be to say “I’m not responsible for that” and move on with your day. Don’t do that.
Even if it’s a ridiculous claim and you have done everything right, there are still unscrupulous people out there who will try to assign blame to you. If you don’t defend yourself, you will lose.
Step two: don’t pay it
It’s called a letter of demand because it’s demanding you pay for damages. If you pay it without receiving advice, you’re effectively admitting liability. Do not admit liability!
It’s natural to want to maintain good relationships with your clients or subcontractors and to make problems go away as quickly as possible. Sometimes there’s even pressure from a major client to accept liability for an incident or risk jeopardising future work with them, or withholding funds owing to you.
If you give in to that pressure, it could cause you serious problems. Every claim sets a precedent, and paying for something you’re not actually liable for will open you up to it happening again and again, with a resulting increase to your insurance premiums.
But you don’t have to be the bad guy in refusing a demand or arguing liability on your own – that’s what you have an insurance broker for.
Step three: call your insurance broker
Contact your broker and speak to your account manager. They will ask you for the details of the job referenced in the letter of demand and your understanding of what’s happened. They’ll pick your brain about what the claimant is saying, and if the incident could have happened the way they’ve said.
Around 90% of the time, the next step will be to lodge a claim with your insurance company, who will then handle things on your behalf. If you hold insurance with AWIB’s Fire Protection Industry Insurance (FPII) scheme, AWIB does that internally, as we can manage claims on your behalf.
Your insurance company will make a decision on your liability for the incident, and what the insurance company determines constitutes liability might be different to what you think. This is why you must not admit liability and pay the claimant, because if the insurance company finds you are not liable they won’t pay for the damages, and you’ll be lumped with the entire bill.
So let your insurance company handle it. If there are costs involved in your defence, AWIB’s FPII scheme covers those in addition to the sum you have insured.
Step four: protect your relationship with the claimant
There’s no reason for an insurance claim to destroy your relationship with a client or subcontractor. Once you’ve spoken to your insurance broker and lodged a claim, let them negotiate with the claimant’s insurer.
If you hear from the claimant about the incident, you can tell them you’ve passed the issue on to your insurer, and you’re not legally allowed to discuss it any more. Give them your insurer’s contact details for any enquiries they might have.
Once you’ve submitted the claim your hands are legally tied, which saves you from getting into arguments with the claimant and protects your relationship with them.
Step zero: tell us before you get the letter of demand
Following steps one to four is great, but being a little bit proactive could save you significantly.
So as part of our PI and PL insurance policies, we ask people to take a ‘step zero’. That is; tell us about any incident that may result in a claim as soon as you become aware of it. When you sign up for a new PI policy, we ask you to tell us about any potential incident in the past 12 months, and we prefer the same for PL policies.
PI policies are on a ‘claims notification’ basis, meaning that if you become aware of a potential incident you must tell us within the relevant policy period. PI policies are not designed to cover for previously known circumstances or incidents. So, if you receive a letter or email holding you liable followed by a notice of intention to sue two years later, and you haven’t advised us previously, you may find yourself in a difficult situation with potentially no insurance cover.
Often, we only hear from our clients when they get a notice of intent to sue, well after they have received the letter of demand. From the date on the notice of intent to sue, you may have as little as 21 days to respond. At that point, we’re in damage control responding to a claim, there isn’t time to mount a proper investigation, and you may be subject to additional legal fees that aren’t covered by your insurance.
If we know about the incident immediately, or even if you’ve called us the moment you receive a letter of demand, we have time to conduct an investigation of the incident while the evidence is fresh, which means we can better represent you.
So don’t give in to pressure to admit liability, and let your insurer look after you. AWIB is here to defend you, and we’re here to defend the fire protection industry.
GET IN TOUCH
Have you received a letter of demand, or do you have a sneaking suspicion one is on the way? Give us a call.