The Benefits of "Continuous Cover" When Renewing Your Professional Indemnity Insurance
Continuity with one professional indemnity insurer provides significant cover benefits, with a change in insurer introducing the risk that a claim or circumstance may fall between a gap created by the break in continuity. 
To understand the risks involved with a change in insurer one must have an understanding of how a policy operates and importantly the obligations imposed upon Insureds to notify their insurer during the relevant policy period of any circumstance that may give rise to a claim. 
 
Professional indemnity (PI) insurance policies operate on a claims made basis which means that it is the policy that is in effect at the time a claim is made that will respond to the claim; rather than the policy that was in effect when the relevant services were provided. Further, if an Insured notifies an insurer of a circumstance that may give rise to a claim and that circumstance later does give rise to a claim it is the policy under which the circumstance was notified that will respond to the claim, even if the actual claim is made months or years later.
 
There are two key mechanisms that bring about the obligation upon the Insured to notify their insurer:
 
1.     Section 40(3) of the Insurance Contracts Act:
 
Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract. 
 
The above prevents insurers from denying claims that subsequently arise out of circumstances that were appropriately notified during the relevant policy period. 
 
 2.    The known claims exclusion; Claims made policies typically contain a specific exclusion in relation to claims arising from facts or circumstances known to the Insured prior to the policy inception.  
 
The above entitles insurers to deny claims that arise out of matters known the Insured prior to the commencement of the policy.
 
An innocent failure to not formally notify your insurer of a fact, circumstance or claim can have disastrous consequences and potentially leave you uninsured for the loss. The single most common reason for denial of indemnity of professional indemnity claims is that the claim arose out of a circumstance that was known by the Insured prior to the policy inception. 
 
Continuity with the one insurer goes a long way towards managing the risk of having a claim denied because of the known circumstance exclusion, this is because of the continuous cover clause which is now a feature of many policy wordings.  The “continuous cover” clause extends to cover claims made during the policy period that arise out of facts, matters or circumstances of which the Insured was aware of prior to the policy period but which were not notified. Certain conditions and limitations often apply including that the Insured was insured with the same insurer for unbroken successive policy periods. 
 
A typical example of a continuous cover clause is:
 
Notwithstanding the known circumstance exclusion and in the absence of any fraudulent non-disclosure, the Insurer agrees to indemnify the Insured for any Claim first made against the Insured and notified to the Insurer during the Period of Insurance arising from any fact or circumstance which the Insured knew could give rise to a Claim prior to this policys inception provided that:- 
 
  •     the Insured’s professional indemnity insurance was arranged with the Insurer at the time when the             Insured first knew of such fact or circumstance (hereinafter referred to as “the Prior Policy”); and
  •     the Insured’s professional indemnity insurance has been continuously arranged with the Insurer since       the Prior Policy up until this policy’s inception; and
  •     the Insurer’s liability for any such Claim shall be the lesser of the coverage available under this policy       or the Prior Policy (had appropriate notification been made to the Insurer under such Prior Policy).

The continuity benefit is the main reason we advocate maintaining a relationship with the one insurer. This does not mean we do not advocate a client change insurer where a significant reason to do so exists but it is why we strongly advise against changing insurer for small premium differences because in our experience the continuity benefit is worth a lot! 

For more information please call us on 1800 077 933.

 
 

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