What Does Your Professional Indemnity Insurance Policy Cover?

Professional Indemnity (PI) insurance policies vary greatly from one policy to the next. With well over 40 different products currently available, ascertaining whether one policy is better than the next is a complex exercise. The cover offered by PI policies has evolved over the years with many insurers offering areas of cover that were not available as little as three or four years ago.

 

TRADITIONAL PI INSURANCE

Traditionally PI insurance policies provide indemnity for claims against the insured entity for civil liability incurred in the provision of professional services, or for a breach of professional duty of care. An example of a typical insuring clause is provided below:

“Underwriters agree to indemnify the Insured against civil liability for compensation incurred in the provision of Professional Services for any Claim first made against the Insured and notified to Underwriters during the Period of Insurance”

Some insurers restrict this cover further by requiring an act, error or omission, or negligence however in essence the policy will provide indemnity to the insured entity for claims for compensation where the claimant has suffered either financial loss, property damage or bodily injury which has resulted, or is alleged to have resulted from the provision of the insured entity’s professional services (i.e. design, advice or specification).

Further to this, insurers will usually provide cover for the legal costs associated with the insurer’s defence of the claim. Insurers provide cover for the legal costs either in addition to the limit of indemnity (a “costs exclusive” limit), or within the limit of indemnity (a “costs inclusive” limit).

 

EMERGING COVER

Some insurers now offer cover that was not previously covered by PI insurance because the nature of the loss would not trigger insuring clauses like the example provided above. Many insurers do not consider the following policy inclusions as fundamental PI cover and are reluctant to provide them under their policies.

 

Criminal Prosecutions

With the implementation of recent changes to Work Health & Safety Legislation, it is possible for professionals to be criminally prosecuted where it is alleged they have provided an unsafe design of a workplace, building or plant.

PI policies that only cover claims for civil liability will not typically respond to matters of a criminal nature and therefore will not provide legal costs defending criminal matters because a claim for compensation (civil liability) has not been made.

Some insurers now provide an extension to cover costs arising from criminal prosecutions provided that the matter arises from the provision of the professional services covered by the policy. The mechanism by which insurers provide this cover can vary, however often for the policy to respond the criminal matter would have to be one that is likely to give rise to a claim for compensation (in the event of a guilty finding).

An important limitation on the cover provided for criminal prosecutions is that some insurers also impose a condition that if the insured entity is found guilty of the criminal charge, then the legal costs incurred by the Insurer in the defence of that claim must be repaid by the insured entity.

It remains to be seen whether such a fundamental shift in thinking, such as cover for criminal prosecutions, will be widely accepted by the PI insurance industry. As it stands, less than half the insurers in the market currently provide cover for criminal prosecutions. Does yours?

 

Inquiries

It is now common practice for professional accreditation or regulatory bodies to undertake inquiries into the professional conduct of their members. This will usually arise from a complaint made by a third party in relation to the conduct of the professional. Once again, these matters alone may not trigger the insuring clause in insurers’ policy wordings (if a claim for compensation has not been made), therefore a policy extension will normally have to be provided by the insurer in order to cover the costs associated with the preparation of a defence and appearance at the inquiry.

The sanctions available to the professional body will vary depending on the powers it has been granted, however invariably they can range from a fine, to suspension or cancellation of the professional’s accreditation/registration/licence. Where a fine is imposed on the professional, most insurers will not cover the fine itself however they may provide cover for the legal costs incurred in the defence of the inquiry.

With increased competition amongst PI insurers, almost every insurer has been forced to provide cover for the legal costs associated with representation at an inquiry. Because it has become so readily available in the market there is now an expectation that PI policies must provide this cover to be comparable with the available market alternatives.

As we are now experiencing a greater expectation of the professional conduct of every profession there will also be an increase in the number of inquiries into conduct by the various regulatory authorities. Does your policy cover this?

 

Fines & Penalties

There is often confusion surrounding cover under professional indemnity policies for fines & penalties that have arisen out of the provision of the professional services, versus those that have arisen out of the running of the business.

Generally speaking, cover for fines & penalties is not insurable under a professional indemnity insurance policy. Many people purchase Management Liability (ML) insurance to attempt to cover this gap; however fines & penalties arising out of the provision of the professional services will often be specifically excluded under a ML policy because ML policies typically contain an exclusion in relation to claims that arise out of the provision of professional services.

Where an ML policy is able to fill a gap is where the fine or penalty arises out of the running of a business (i.e. a fine for providing an unsafe workplace for your employees) may be insurable under a ML policy.

The fundamental difference between PI insurance and ML insurance is that PI is designed to cover matters arising out of the provision of professional services whereas ML insurance is designed to cover liabilities incurred in the administration of a business.

It is important to gain an understanding from your broker as to the range of coverage options available when the negotiation of your insurance program is taking place and to ensure that if cover for these additional exposures is required then this is established early in the negotiation process to allow the broker to explore the available options.

Where your broker has simply “rolled over” your existing policy year after year it is likely that you may have missed out on some of these “free” additional benefits.

BRIC offer a free policy review and analysis service. Contact us on 1800 077 933 to see if your policy can be improved.

Author: Patrick Beaumont

 
 

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