In the case of Professional Indemnity insurance it’s a type of liability insurance that provides cover for the financial ( note that it is financial consequence only) consequences of neglect, error or omission by the firm taking out the policy.
In addition to the above the policies are designed to provide for the legal and other costs and expenses incurred in the defence of any claim.
Not all policies are the same and wordings between insurers differ – so that where the label says ‘professional indemnity ‘, the contents within the policy may differ greatly.- This is where you need a firm like ours to help you through the insurance terminology maze.
In addition to a true claim being defended there are many allegations of negligence brought against the professions - By having a Professional Indemnity Insurance policy in place you are giving yourself access to resources and expertise to defend the allegation of professional wrongdoing against you and so protect your reputation.
Everyone owes a duty of care to show reasonable care and skill when they are engaged to provide a service to someone. If someone fails to exercise this duty (i.e. is negligent) they may be liable for losses incurred by their client, and/or third parties. The problem is that even if you are innocent it may be costly to prove it/ defend the allegation of neglect.
The mechanics of the policies are that a person purchases Professional Indemnity insurance. If a claim is brought, it must be brought against the Consultant Firm and the person making the claim must first prove liability against the Consultant Firm (i.e failure to exercise reasonable care and skill in the delivery of its service). The policy works in providing expert advice and legal expense cover in defending the claim and if a judgement is made against the defendants the policy will then pay the award.
The above is a very simplified summary of PI Insurance – There are terms conditions and other factors pertinent.
Policies have what’s known as a limit of indemnity which is a cap on t on the amount that insurers will pay in the event of a claim .You chose this limit when you take out the policy - the limit of indemnity you chose should reflect your exposure to claims for Professional Indemnity.
Certain policies have what’s known as an Aggregate Limit of Indemnity – this means that the total that will be paid for ALL claims in an insurance year – including the costs and expenses relating to the defence of claims will be capped at the Limit of Indemnity chosen.
Other policies are more favourable and the limit of indemnity given by an insurer would be for an Any One Claim limit, which means that one could have a number of claims and the limit would be applicable to each of these claims - The Any One Claim limit policy is the preferable – if there is a choice of quotes.
Professional Indemnity insurance operates on what is known as a 'claims made' basis. This means that it is the policy in force at the time the claim is notified which will operate, irrespective of when the work was actually undertaken or when the alleged act of negligence took place. The important thing to bear in mind is that people a professional has done work for can bring claims many years after services are complete (subject to the relevant limitation periods) – so we cannot over emphasise the importance of maintaining cover into the future – even after you may have ceased to practice.
Many professional indemnity policies come with what’s known as a retro active date. What this means is that the insurer will not provide cover in respect of any claims brought/arising from work carried out before a certain nominated date - The Retroactive date ( Usually the commencement of your first Professional Indemnity policy )
As with any insurance there are conditions in policies – Like most there is a condition that you report any claim or potential claim ( as well as an actual claim ) – What is important to remember in the wordings of PI or Malpractice Insurance is that you must not only report a ‘Claim’ but you must also report ‘Circumstances’ AND you must report as soon as you are aware of them – Leaving it ‘till things develop or progress can leave you effectively without cover as insurer may claim that you breached the reporting conditions on the policy , effectively prejudiced their position and therefore are not entitled to indemnity under the policy . In fact this area causes the most disputes on professional indemnity insurance.
Briefly ( but not in policy legal terms – so this is a guide only !) you are required to notify insurers when any of the following occur
- If someone indicates to you that a claim is likely to be made against you or they threaten to sue you for some alleged negligence.
- If you are aware of any direct or indirect criticism of your firms professional services, which could give rise to a loss to a third party/client – Non payment of a bill might indicate problems such as this.
- If you are aware of any errors or mistakes in your professional services (,which could give rise to a third party loss) or if you were not happy with the work you carried out or that ,this, in some way was incomplete or inadequate ( even if this work was carried out by one of your subcontract consultants )
- If you are aware or somebody indicates to you that they are not happy with the professional services of any of your sub-consultants or people you are responsible for and that the work of these persons may give rise to a financial loss a client /third party.
Remember – in reporting , It doesn’t matter that you might consider the intimation of a claim as spurious , unjustified etc. The thing is you have to report the claim or circumstance to the insurer as soon as you are aware of it – otherwise you’ll effectively negate the benefit of having a policy at all.
The reality is there are many in all policies, PI policies are no different - We don’t want to bore you with pages of insurance terms and conditions – The important thing is if you take out a policy you should be familiar with what it is you’ve purchased and the good thing is that if you chose to place you business with us you access not only many insurance markets, you access almost half a century of expertise.