Professional Indemnity Insurance
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WHAT IS PROFESSIONAL INDEMNITY INSURANCE?
Professional Indemnity Insurance protects you from claims if your client holds you responsible for errors, or the failure of your work to perform as promised in your contract.
Coverage includes legal defence costs - no matter how baseless the allegations. PI Insurance will pay for any resulting judgments against you, including court costs, up to the coverage limits on your policy.
WHO IS A PROFESSIONAL?
Anyone who gives to another person advice and/or services of a skilful character according to an established discipline might be regarded as a 'Professional'. That means persons other than those in 'traditional' Professions, such as doctors and lawyers, are now considered to be Professionals i.e. Computer consultants, advertising agents, acoustics consultants, trade associations and fund managers.
WHY DOES A PROFESSIONAL NEED A PROFESSIONAL INDEMNITY POLICY?
A Professional will hold himself or herself out as having a special skill, which can be relied upon by another. Consequently the law requires that the Professional exercise the required skill to an appropriate level expected by that profession. Professionals are only human and mistakes do happen. Any financial loss, injury or damage arising from a mistake or failure by the Professional to exercise the required level of skill may mean that an award is made in favour of a person who suffers a loss, damage or injury. A Professional may also be held to be liable for a mistake even though there was no negligence.
WHAT PROTECTION WILL A PROFESSIONAL INDEMNITY POLICY PROVIDE?
A Professional Indemnity insurance policy aims to shield the Professional's assets in the event of a claim therefore ensuring that he/she is able to carry on their business. Every policy on the market is different. You need to compare each policy.
WHAT IS A 'CLAIMS MADE AND NOTIFIED' POLICY? HOW DOES IT DIFFER FROM AN 'OCCURRENCE' POLICY?
A 'claims made and notified' policy requires all claims and any fact, situation or circumstance that results in a claim, to be notified to the Insurer within the Period of Insurance. The actual mistake could occur at any time, if there is retrospective cover, or otherwise it must occur during the Period of Insurance. The Insured must not have had any prior knowledge of the fact, situation or circumstance before the Period of Insurance. In an "occurrence" wording (as for Public Liability insurance policy wordings), the circumstance must occur during the Period of Insurance whilst the notification of this event can occur at any time subsequently.
WHAT IS THE DATE OF INCEPTION?
The Inception date is the date of the start of the Policy Period.
WHAT IS THE RETROACTIVE DATE?
When the policy provided is written on a claims-made basis as is done with Professional Indemnity, prior acts become an important consideration. If an Insurer is not willing to provide coverage for previous, unknown events that may have occurred prior to the policy inception, the tool used to limit this exposure is the retroactive date limitation.
If a policy is written with an effective date of 1st January, 2005 for a business that has been trading since the year 2000 without a retroactive date, the policy is activated for any incident that is reported during the policy period ie after the 1st January, 2005, regardless of when the incident occurred. Adding a retro date to the policy is comparable to building a fire wall. When the insurer adds a retroactive date to the policy that is the same as the inception date of the policy, the policy will respond only to claims that are reported during the policy period if they occurred after the policy was written ie. in the case above, only errors committed after the 1st January, 2005 would be covered.
A claims-made policy that does not have a retroactive date or an unlimited retroactive cover is better for the insured because there are no restrictions on when the wrongful act must have occurred. For coverage to apply, the claim must be made after the policy inception, regardless of when the incident occurred. Such a policy still does not cover incidents that are known at policy inception and could give rise to a claim in the future. These must be disclosed on the application and are not covered.
A contract without a retroactive date is advantageous to the insured from a coverage standpoint and, as a result, the insured can expect to pay more for the coverage. Most professional liability contracts do include a retroactive date. When a client cannot obtain unlimited retroactive coverage, the retroactive date should be set as far back as possible.
WHEN DOES A WRONGFUL ACT TAKE PLACE?
Few professional liability insurance policies provide a definition for arriving at the exact time at which a wrongful act takes place. However, according to custom and practice, the wrongful act is generally considered to have taken place when the professional service that ultimately causes the loss or damage is actually performed or should have been performed, but was not.
Determining when an incident occurs is not always a straightforward process because liability claims often involve a series of separate but continuing acts that take place over an extended period of time. For example, the doctor treats the patient for an infection over a six month period and then the patient dies due to improper treatment. What was the date of the occurrence? Evaluating situations in which a claim results from services rendered on a continuing basis unfortunately poses problems and often defies straightforward determination of when the wrongful act occurred. Often, the determination must be left to negotiation or to the courts.
WHAT FACT, SITUATION OR CIRCUMSTANCE SHOULD I NOTIFY TO AN INSURER?
Any fact, situation or circumstance, which a reasonable person in the Insured's professional position would have thought, might result in someone making a claim against him/her.
WHAT DOES A CIVIL LIABILITY PROFESSIONAL INDEMNITY WORDING COVER?
A 'civil liability' wording will indemnify the Insured for claims arising from any civil award imposed by a civil court, as opposed to criminal liability or penalties enforced by a criminal court. A Civil Liability Professional Indemnity wording is broader than a 'negligence wording', as it will indemnify the Insured for claims arising from strict liability, where no negligence is involved.
WHY DO I HAVE TO FILL OUT A PROPOSAL FORM?
Generally before a quote can be given for Professional Indemnity Insurance, underwriters will require certain information in order to understand the Insured's profession and all the characteristics of the Insured's business. The information provided in the proposal either forms part, or all, of the information that an underwriter will reply upon to provide a quote. Generally each Insured is quoted individually, since one Insured's circumstances (i.e. the type of profession, type of work performed, number of years in the profession an experience) may vary considerably from another.
WHAT DOES 'COSTS INCLUSIVE' EXCESS AND 'COSTS EXCLUSIVE' EXCESS MEAN?
Costs Inclusive Excess means the Insured must pay the amount of the Excess towards the legal and defence costs. Costs Exclusive Excess means the Insured does not pay any excess towards the legal and defence costs but only pays the amount of the Excess towards the settlement of any Claim.
WHAT IS RUN OFF COVER? HOW MANY YEARS SHOULD I TAKE OUT RUN OFF COVER FOR?
If an Insured chooses to sell his/her business and retire, then 'Run Off' cover will indemnify them for any unknown claims arising during the Period of Run Off Insurance, arising from mistakes made whilst they were still in business. It does depend upon the Retroactive date offered with the policy. It is difficult to suggest the length of time that 'Run Off' cover ought to be taken out, as it depends upon the Statute of Limitations legislation applying to that particular claim. In some cases a claim can be brought in excess of 15 years after the mistake occurred.
WHAT IS CONTINUOUS COVER? WHEN DO WE OFFER THIS COVER?
This is, in effect, a loyalty bonus. It means that if someone who was insured with us in unbroken successive periods notifies a claim circumstance in the subsequent period which should have been notified in the earlier period, then that claim will be covered under the latter policy but subject to the lesser limit of the two applicable policies. Issues of 'non-disclosure' and 'known circumstances' exclusions will not be raised, however prejudice due to delayed notification may be taken into account in the adjustment of the claim.
WHAT IS AUTOMATIC REINSTATEMENT?
Unlike other forms of liability policy, the sum insured of the professional indemnity policy is limited so that the limit applies to the aggregate of all claims against the policy in the policy period. The automatic reinstatement allows this aggregate limit to be doubled while the limit for any one claim remains the limit of the sum insured.
WHAT IS MEANT BY A 'KNOWN CIRCUMSTANCE'?
Claims arising after the policy inception which arise from circumstances which the Insured knew (or should have known) at the time of the policy inception may give rise to a claim, are excluded. This is because such claims are not fortuitous at the time of entering into the insurance but, on the contrary there is a real possibility that a claim may eventuate.
WHAT IS THE DIFFERENCE BETWEEN JURISDICTION AND TERRITORIAL LIMITS?
These two terms are sometimes confused. Territorial Limit refers to the place where the act, error or omission occurs. Jurisdiction Limit refers to the fact that the policy will only cover claims brought within the court system of the nominated countries.
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