Professional Indemnity Insurance Tips

ARRANGING YOUR POLICY
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CLAIMS TIPS
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ARRANGING YOUR POLICY

1. Use a specialist broker

PI is a specialist class of insurance and unlike other insurances such as house and car there are no minimum standards that insurers are obliged to provide. Every policy is different. Many standard policies are not suitable for professionals in specific industries and a customised "building surveyors" or "engineers" policy, for example, does not mean the policy is appropriate, many insurers customise their policy wordings by adding exclusions rather than improving cover. Some insurers and brokers do not understand what it is you actually do!

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2. Choose your broker carefully

We will approach those insurers who are interested in providing you with terms; we select these from over 20 different markets. Having other brokers involved may inhibit our ability to negotiate the best outcome for you. Once an insurer has released terms to one broker they are extremely reluctant to revise those terms even when we have presented a more attractive proposition. Think carefully before you seek Professional Indemnity insurance from multiple sources as this can confuse and annoy insurers. Remember, we are obliged by law to represent your best interests. Not all suppliers have this obligation - check before you have them seek terms for you.

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3. Be wary of insurance agents or brokers acting as an agent of the insurer

The traditional role of a broker is to act as an agent of the client (and therefore under a legal obligation to act in your best interests) however it is common for brokers to administer “schemes” under which they act as an agent of the insurer and therefore are legally obliged to act in the insurer’s best interests not yours! Some brokers establish chinese walls or subsidiary companies to administer schemes for them, this does not eliminate the conflict of interest they have in promoting such products. If in doubt ask your broker if he/she has any such conflicts. They have a legal obligation not only to declare such conflicts but to avoid them where they are claiming to act in your best interests.

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4. Disclosure is paramount

When applying for or amending your policy you are obliged to disclose to the insurer every matter that you know, or could reasonably be expected to know, is relevant to the Insurer's decision whether to accept the risk of the insurance and, if so, on what terms. This means that you may be obliged to disclose information even if the information is not requested on the application form. Failure to do so may result in the insurer denying or reducing their liability for a claim. This is especially important with respect to claims or circumstances. If you have successfully defended or refuted allegations of your wrongdoing your insurer must be advised.

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5. Read your policy wording and any endorsements

Whilst not a relished task for most, reading your insurance policy is extremely important in order to fully understand how it operates. Do not make assumptions about how your policy works because you may end up being disappointed in the event of a claim. A specialist PI broker will be able to explain the key components of your policy and how to read them to assist in you obtaining a clear understanding.

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6. Ensure the "business" or "profession" listed in your policy adequately describes what you want insured

Insurers will specify the professional business or activities that are covered by your policy therefore if you undertake activities that are outside the professional business listed you may not be adequately covered. Review the description provided in your quotation or contained in your policy and seek amendment if it does not adequately encompass all the professional services you provide.

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7. Ensure all trading entities are insured

Due to the “claims made” nature of professional indemnity insurance all entities that you have previously traded through should remain Insured on future policies. This means if you have changed legal structure, for example from a sole trader to a company your policy should name both you as a sole trader and your company as insured.

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8. Articulate your risk management strategies

Showing that you have a good understanding of the professional risks that your business faces and the strategies that you have employed to manage these risks can assist us in negotiating the best outcomes for your professional indemnity insurance. This is particularly relevant for those firms who have claims experience or operate in perceived high risk areas.

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9. Put your best foot forward in presenting your business

Completing your application form in a clear concise manner assists us in making the best possible presentation to insurers on your behalf. The effort you put in at your end can influence the outcome we achieve for you with applications that are difficult to read or understand tending to go to the bottom of the insurers assessment pile!

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CLAIM TIPS

10. Do not handle your own claims without the insurer’s consent

We are aware some firms handle minor claims themselves without informing their insurer under the belief that notification of these matters will adversely prejudice future negotiations with insurers. Such conduct is fraught with danger: Firstly in the event that you notify your insurer of a claim for which you wish to seek indemnity the insurer may deny the claim or reduce the indemnity available to nil on the grounds that they would not have offered you insurance had they been aware of your claims history (even though you may have successfully defended these prior claims). Secondly, in the event that the matter you handle internally blows out and you wish to seek indemnity under your policy the insurer may be able to reduce their liability on the basis that your actions prejudiced their position.

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11. Notify claims or circumstances that may give rise to a claim as soon as possible

In order for your policy to respond you must notify the insurer of any claim or circumstance that may give rise to a claim during the current policy period, failure to do so can have disastrous consequences. The simple rule to apply here is when in doubt – notify! If you become aware of a claim or circumstance that may give rise to a claim we strongly recommend you discuss this with your broker immediately and prior to making a written notification to the broker or insurer.

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12. Maximise your policy benefits in the event of a claim

Notifying a claim or circumstance under your policy does not mean you are automatically covered, it is therefore very important that you understand the process insurers will follow once a claim or circumstance is notified to assist you in maximising the benefits under your policy. If an insurer is notified of a circumstance that may give rise to a claim but no formal claim has been made the insurer will most likely note their records and defer investigation of the matter until (and if) a claim eventuates. However this will depend upon the significance of the matter. If a significant circumstance is notified or a formal claim has been made then the insurer will investigate whether you are entitled to indemnity under the policy, such investigations are normally undertaken by a solicitor on the insurer’s behalf. A solicitors initial brief is usually two fold where they are asked to investigate the matter to determine whether you are entitled to indemnity under the policy whilst at the same time conduct defence of the matter. Investigation of your entitlement to indemnity will involve analysing the policy wording to determine whether the current matter:

i) Satisfies the insuring clause

ii) Is subject to any of the policy exclusions or endorsements that restrict or exclude cover for such matters

Perhaps the most common ground for insurers refusing indemnity is due to “known circumstances” whereby an insurer relies upon an industry standard policy exclusion to deny a claim on the basis that the insured was aware of the claim or circumstance prior to the policy inception. It is also important to note the solicitor in the above circumstances is normally acting on behalf of the insurer, not you therefore in some instances it may be prudent for you to obtain your own independent legal advice.

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13. Be wary of the insurer’s solicitor - consider requesting all questions from the insurer be in writing

If you are requested to attend an interview to assist the insurer in investigating a claim we strongly recommend you seek prior advice from your specialist broker who may recommend you seek your own legal advice or request the insurer put all questions in writing to you. This is to reduce the prospect of the insurer’s solicitor putting you on the spot with loaded questions.

The above may seem unnecessary however the reality of PI claims is such that taking some good advice at the beginning can make the difference between getting a claim paid or not. It can also be far less expensive seeking your own legal advice in the beginning rather than having to spend substantial amounts later trying to convince the insurer to change their mind and indemnify you.

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