Does your Professional Indemnity Insurance Policy have a Continuous Cover Clause?

Continuous Cover gives cover for claims that have arisen out of a known circumstance and should have been notified to the insurer in a prior policy period. This is providing that the following points are taken into account:

• The current insurer was the insurer at the time the policyholder first became aware of the matter.
• Continuous Cover was held with the insurer.
• If the insurer had been notified of a circumstance, the policyholder would have been covered under the policy in force at that time.
• The claim, nor the known circumstance, was previously notified to any insurer.
• The lesser limit of the two applicable policies will apply.
• Delayed notification may be taken into account in the adjustment of the claim should the insurer’s position be prejudiced.
• Issues of ‘non-disclosure’ and ‘known circumstances’ exclusions are not raised.
• Fraudulent non-disclosure or misrepresentation does not occur.

 

Continuous Cover and Section 21 of the Insurance Contracts Act

The benefits of a Continuous Cover clause do not forgive a policyholder’s overriding legal duty of disclosure under Section 21 of the Insurance Contracts Act (the Act):

• Any policyholder has a duty to disclose every matter that is known and could be relevant to the insurer accepting the risk.
• Section 28 of the Act details the solutions available to an insurer if it could be shown that a policyholder failed to comply with its duty to disclose.

 

Changing Insurers

When changing the insurers, it is important to note that the policy benefit of continuity ceases. It is therefore imperative that prior to the expiry of your current policy, that you advise your insurer of the following:

• Incidents or circumstances known to your company (including employees), that may lead to a claim against your insurance policy;
• Any claims that have been made against the Insured Company(s) by a third party.

This will ensure that in the event of any incidents or circumstances materialise and become a formal claim, you will be afforded indemnity subject to the general terms and conditions of the policy.

 

Extended Continuity of Cover

In some circumstances, when changing insurer, it may be possible to obtain ‘extended continuity cover’ with your new insurer.

Having this benefit under your policy will provide you with the same benefit as if you were continuing cover with your current insurer. However, it is not automatically provided and nor is it readily available from insurers due to the exposure they will be covering which they haven’t received premium for.

The benefit of ‘continuity of cover’ provided by maintaining cover with your current insurer can prove to be invaluable should a claim arise that should have been reported in a prior policy period. It should be a key consideration for a business owner when changing insurers, especially if the decision to change insurers is largely price driven.

Consider this…An employee or even a director fails to notify an incident or circumstance that could give rise to a claim. If you change insurers and the matter isn’t notified to the insurer on risk at the time the matter arose, you would not be covered by your new insurer unless they provided the ‘extended continuity of cover.