Demystifying professional indemnity insurance

Martin Taylor

Purpose of this webinar today is to provide:-

• A simple understanding of what professional indemnity insurance is
• Explain the claims procedures
• Discuss the covers provided and any options

Robert Reeve

All businesses that give advice or provide designs need protection to defend them against allegations of errors or omissions arising from their professional services.

Question: What’s the difference between professional indemnity and public liability insurance?

Public liability policies provide cover for your legal liability for injury or damage that is caused by your actions whereas PII is to cover you for financial losses caused by errors or omissions in your professional services

I’ll now pass you over to Martin who will explain more about the insurance coverage that can be provided.

Martin Taylor

• The policy in the simplest terms covers:-
• Your legal liability for any errors or omissions including all defence costs.
• Your liability for any unintentional defamation.
• Your liability for any unintentional breach of confidentiality
• Your liability for Unintentional Infringement of Copyright or Trademark or in some cases Intellectual Property Rights.
• Your liability for any losses sustained by your customers due to the dishonest acts of your employees.
• The cost of replacement and restoration of documents including electronically held documents.

Robert Reeve

When your insurance broker arranges the policy a key consideration needs to be whether the policy limit applies to each claim or in the aggregate.  If the policy has an aggregate limit there is a danger that cover will run out if you have more than one claim during the year so we always recommend the limit applies to any one claim.

We also need to consider whether the Insurer makes the limit inclusive of costs. If they do then we recommend a higher limit of indemnity because it will need to be adequate to cover both the damages awarded and the costs.

Like most other policies the PII will have an excess which excludes the first part of any claim. This is usually imposed by the Insurer but you may wish to take a voluntary excess to reduce the premium.

Martin Taylor

There are 3 key issues to be considered:-

• The policy is a claims made policy which means it is the policy in force when a claim is made rather than when the error was committed.
• Circumstances that may give rise to a claim must be reported immediately and within the policy period.
• Professional indemnity policies generally have a retroactive date which restricts cover to claims for work carried out from that date – this is normally either when you first bought cover or started the business.

Robert Reeve

As we have said, the purpose of the PII is to provide the Estate Agent with protection should they receive an allegation of an error or omission in their professional services.

The types of professional services that estate agents typically provide can include valuation of properties and description of properties and these can both lead to claims against the Estate Agent.

A common scenario would be where the Estate Agent provides a house valuation for a divorce and this valuation is used to determine part of the divorce settlement. The house is eventually sold but the price agreed is different to the Estate Agents valuation.

The implications of this could be that one of the divorced couple could sue the Estate Agent for the loss of funds from the difference between the valuation and the eventual sale price.

It may turn out that no mistake has been made with the valuation and it was just a change in market conditions that caused the difference in sale price. Either way, the PII policy will cover the estate agent’s  legal defence costs regardless of whether they actually made a mistake in the valuation.

Martin will now go through another couple of case studies.

Martin Taylor

Two main areas of work:-

• The advice on the protection of crops by the application of agrochemicals and
• Advice and assistance in connection with subsidy applications

As an example:-

If advice is given concerning the application of an agrochemical and for example an incorrect nozzle size is specified  and the chemical is sprayed with a fine spray which drifts into adjoining farms crop that may be a more expensive crop such as soft fruit the agronomist could be found liable for the incorrect specification.

In respect of subsidy applications a small arithmetical error, slight misunderstanding of the regulations or a missed deadline can lead to the non-payment of an entire subsidy with serious financial consequences for the farmer and a potential liability for the agricultural consultant.

Martin Taylor

Builders frequently provide turnkey services and though they may not carry out any design in house will have a contractual liability to their clients for the design and are likely to be the first port of call for any claims.  This highlights the need for Professional Indemnity Insurance or Design and Construct Insurance even when you may not be personally providing the advice, specification or drawings.

Implications of this are that you may incur substantial costs in defending and redirecting any claim and could ultimately end up paying if the Sub Consultant does not have any or adequate cover.

A small specification error such as the incorrectly sized chemical bolts to support a staircase landing could lead to a claim in many hundreds of thousands of pounds.

Robert Reeve

Many construction industry clients I speak to just assume they don’t need to worry about cover for the design work if this is contracted out to an Architect rather than provided in-house by them. I have to explain that it’s almost always the main contractor that the customer sues first so they do need PII to defend that in the first instance even if the Architect ends up with the final claim.

Martin Taylor

There are a number of important points to remember in connection with claim:-

When to notify

• You should always notify your broker immediately you become aware of a circumstance that may give rise to a claim. This may be a client who refused to pay your bill and infers that he is dissatisfied with some area of your work.  Even if you feel this is spurious you should immediately notify.
• The risks of not notifying immediately are that Insurers may either not deal with the claim or restrict the level of cover provided if they believe their position has been prejudiced by your late notification.

Who to notify

• I would always recommend advising your Broker rather than notifying the Insurers directly as they will provide you with advice and guidance in the presentation of any potential claim to the Insurers.
• Never do or say anything until you have obtained your Brokers or Insurers advice on how to proceed.
• Also never advise any potential claimant that you have insurance or advise them of who your Insurers are without the prior approval of the Insurers.

Robert Reeve

• Hopefully we have been able to give you all a better understanding of what Professional Indemnity Insurance is for and which types of business should think about having a policy.
• We have covered how the insurance policy operates and the protection it gives to the business.
• So please give some thought to your own business and ask yourself if you are covered for the risks & exposures you are faced with.
• We suggest you seek independent professional insurance advice and choose quality cover over cheap price.