Key Facts
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Duty of Care
Any professional owes a "Duty of Care" to anybody who might reasonably rely
on his or her service or advice. The same Duty of Care is owed whether a fee is
charged or not, even if it is for an obvious secondary function or service.
What is PI?
PI insurance is a cover against allegations of breach of Duty of Care. Should
legal liabilities be established against a professional, PI insurance will,
subject to its terms and conditions, pay for the damages together with any costs
awarded against the defendant.
PI insurance is a fairly recent development, but the surge in the need for
professional indemnity insurance as a result of heightened consumer awareness
and the advent of Legal Aid has resulted in many professional bodies introducing
PI cover as a prerequisite of membership.
Claims Made
Policy
The majority of PI insurance policies are written on a "claims made" basis.
This means that the policy will respond to claims first made within its
duration, even though the work, which caused the loss, may have been undertaken
before hand.
Retroactive/Retrospective
Cover
An insurer for a client who has not previously held PI insurance may not be
willing to cover claims that arise from work undertaken prior to the issue of
the policy. Retroactive cover may then need to be secured, covering past work
done by a firm. An insurer might decline to offer retroactive cover and offer
the first time PI buyer cover from the inception date of the policy. This is
known as a Retro Date Inception (RDI).
CDM/Planning
Supervisor
These regulations place more stringent responsibilities on the designer in
respect of health and safety. PI policies exclude Criminal Prosecution Cover,
however, if full details are provided to PI Underwriters, most Underwriters will
extend the PI Cover to include the role of Planning Supervisor plus the legal
costs of defending criminal prosecutions in respect of any alleged breach of the
CDM Regulations.
Loss of Documents
Loss of documents is another common extension to PI policies. It pays for
costs arising from the loss of paper and computer records, maps, certificates,
etc.
Libel and Slander
This is a prudent extension to the PI policy for any professional who needs
to be open in his views and comments. Libel and slander are written and verbal
statements of a defamatory nature, which misrepresent and harm the reputation of
another.
Common Terms
And Phrases
Common phrases used in PI insurance include:
Limit of Indemnity. The highest possible compensation paid out under the
policy should a claim be made. The cost and expenses incurred in the action can
either be included within the limit of indemnity or in addition to it.
In the aggregate or in all. Here, the limit of indemnity stated is the total
amount of money that will be paid out under the policy in the given period. For
example, if the limit is £250,000 and an early claim results in a payment of
£200,000, the cover for the duration of the policy stands at only £50,000.
Any one claim or each and every claim. Here, every claim made can potentially
result in the payment of the stated limit. For example, if the limit is £250,000
and an early claim results in a payment of £200,000, the limit still remains
£250,000 no matter how many claims are made against the policy. It is normal to
treat all claims arising out of one set of circumstances as one claim for these
purposes.
Excess or deductible. In common with many other types of insurance, policies
may have a variable amount for which you would be responsible under any claim.
This is known as the excess or deductible.
Collateral
liabilities, Collateral Warranties, Duty of Care Agreements, etc.
Recently, contract wordings have placed additional or increased
responsibilities on professionals. A standard PI insurance policy would not
cover additional responsibilities assumed under contract. Insurers may be
prepared to extend policies to cater for some or all of the additional
responsibilities assumed under contract providing that these are fully
disclosed.
Claims
It is essential that any claim or incident likely to lead to a claim should
be notified as soon as possible. The difficult question here is "What actually
constitutes a notifiable circumstance or claim?" You may receive complaints,
many of which, with diplomatic attention, will not lead to a claim. It is in
your best interests to notify to the insurer any such circumstances in order
that it may be decided whether or not any action needs to be taken and, indeed,
assistance can often be provided in reaching an amicable solution.
Please note the above is a general resume only. For the full picture you
should always refer to your policy document or Professional Indemnity Advisers
to establish the precise terms, conditions and exclusions relating to your own
specific circumstances.
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Key Facts