Professional Indemnity Insurance FAQs
Who Is A Professional Adviser?
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. The law requires that certain industries, for example Architects, Accountants, Engineers, Financial Advisers, Solicitors and Insurance Brokers, to exercise an appropriate level of skill when providing advice to third parties.
Why Do Professionals Need PI Insurance?
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.
In the event that a financial loss, injury or damage arises from a failure to provide that appropriate level of skill may result in an award for damages being provided to the third party that suffers the financial loss, injury or damage. The Professional Indemnity insurance provides cover for damages awarded against the Insured Person and/or Company including costs or expenses incurred in defending the claim.
Public/General Liability Insurance Exclusion
Public/General Liability Insurance only covers liability arising from bodily injury or property damage and does not cover pure financial loss. If you have Public Liability Insurance and believe that this would provide you cover in the event a third party was injured, you are wrong. Most, if not all Liability Insurance policies exclude professional advice for a fee and the rendering of professional services. As a result, this policy would not respond to injury claims either.
Claims Made Policies
The following types of insurance are commonly termed "Claims Made" Contracts of insurance:
- Professional Indemnity Insurance
- Directors and Officers Liability Insurance
- Management Liability Insurance
- Employment Practices Liability Insurance
- Fidelity Insurance
What Is A Claims Made Contract?
"Claims Made policies" only cover claims made or "Known Circumstances" that you become aware could reasonably be expected to give rise to a claim that arise during the period of insurance. Acts or omissions may have occurred in a prior period and, as long as the act or omission, was after the retro-active date, the policy will extend to those prior acts.
It is essential to maintain continuity of cover (no gaps in the period of cover) as claims made against you or circumstances of which you become aware could give rise to a claim, will not be covered if they are not disclosed within the period of insurance where they first arise.
If there is any claim or potential claim or even a circumstance that could reasonably be expected to give rise to a claim, it should be reported to your insurer immediately it is known, regardless of your own view as to fault. If you know of a claim or circumstance and it is not reported within the insurance period in which it arises your insurance policy is unlikely to respond.
What Is A Known Circumstance?
A 'Known Circumstance' could be defined as 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. Therefore if a claim arises after the inception date of the policy from a fact, situation or circumstance that the insured knew or should have known, at the time of the commencement of the policy that might give rise to a claim, it would normally be excluded as it arose from a Known Circumstance.
Why Is Notifying All Known Circumstances Important?
By notifying all circumstances that might give rise to a claim, during a policy period, an insured can get the benefit of their statutory rights under Section 40(3) of the Insurance Contracts Act 1984 (the Act). Section 40(3) provides an insured with statutory rights to notify a circumstance or insured, to an insurer, during the currency of the policy.
If a claim eventuates against an insured from the notified circumstances, then the insurer cannot deny indemnity, despite the fact that the claim arose outside the period of insurance.Therefore, 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 them, should be notified to their current insurer.
Changing From One Insurer To Another (Notification of Known Circumstances)
If you change insurers, you will need to notify your insurer of every conceivable circumstance before the expiry date of your policy. If this is not done, and if a claim was to occur in the future from a circumstance not previously notified, you may be left uninsured, with neither the previous or the current insurer accepting liability for the claim. The prior insurer may deny the claim as the insured failed to notify the circumstance or claim during the period of insurance.