Insurance & You

PROFESSIONAL INDEMNITY: Part 2

3.0 Former Subsidiary: The civil liability of a former subsidiary (must be specified in the policy) in the course of rendering professional services, arising out of any act, error or omission occurring prior to the date such subsidiary ceased to be a subsidiary of the insured. The basis of indemnity is usually agreed in advance and incorporated into the policy.

4.0 Joint Venture Liability: The indemnification of the insured against civil liability for compensation and claimant’s costs and expenses in respect of any claim resulting from the insured’s participation in any joint venture in connection with its professional services. The indemnity will be limited to the insured’s proportion of any liability incurred, and income derived from participation in the joint venture must have been included in the calculation of income furnished by the insured,

Professionals should always consider adding ‘run-off’ coverage to their policies, which provides protection for several years after their businesses are closed. If not, professionals are open to lawsuits as liability does not expire because they are not operating a business. A third party can bring a lawsuit years later, and a PI policy pays for claims and the insured’s legal costs only when it is in effect.

5.0 Rating Consideration
Insurance companies usually consider several factors in determining the premium payable for PI policies. Such factors include the following:

5.1. Insured’s Profession/Experience: The insured’s profession and professional business are vital in determining the terms. The insurer will want to know how many years the insured has been practicing, added qualifications and recognition over the years and the quality or otherwise of previous professional services rendered. The insurer will also be interested in the industry in which the professional operates (and the regulatory requirements), how frequently the insured renders professional services and the likely severity of claims when they occur.

6.0 Scope of Cover: The insured’s preferred cover arrangement including the extensions required will also influence the pricing of the risk.

6.1. Limit of Liability: The limit of liability gives an indication of the maximum potential loss.

6.2. Insured’s Loss Experience: Obtaining loss history of a given insured will assist in assessing the customer’s risk. The insured’s reputation will also be assessed. An insured with a bad loss experience will either pay a higher premium or be ready to abide by stricter insurer’s terms.

6.3. Excess: Excess is the first amount of each and every claim that is borne solely by the insured. If an insured elects to have higher excess than normal, the pricing of his risk will be different from the insured with normal excess.

7.0 Policy Exclusions
Like most other insurance policies, a PI policy does not cover all risks. Some of the exclusions under the policy are as follows:

1. Any act, error or omission that occurred or was committed prior to the retroactive date.

2. Any breach of duty by the insured (or the insured’s employee) committed in the insured’s capacity as a director.

3. Any dishonest, fraudulent, criminal or malicious breach of duty including reckless disregard for the consequences, or any deliberate breach of any statute or regulation.

4. Claims made against the insured before the inception of cover or claims arising out of facts or circumstances which were known (or should reasonably have been known) to the insured before the inception of cover.

5. Liability arising from asbestos or asbestos products in any form or quantity or for defending any claim for such actual or alleged liability. However, this exclusion shall not apply if any injury sustained is unrelated to the inherently hazardous nature of asbestos.

6. Liability to any of the insured’s employees or to any person deemed to be employed by the insured under any relevant workers’ compensation act or similar legislation.

7. Liability arising from bodily injury or property damage involving the use of the insured’s internet/intranet operations including property damage to computer data or programs and storage media.

8. Liability arising from war, invasion, act of foreign enemy, hostilities, rebellion or warlike activities (whether war is formally declared or not), mutiny and civil commotion assuming the proportions of or amounting to a popular rising.

9. Any contractual or other assumed liability, unless the insured would in any event be legally liable in the absence of such contractual or other assumed liability; or any liability assumed by an insured under any guarantee or warranty.

10. Liability arising out of the insured’s insolvency, bankruptcy, liquidation, or failure to pay any trade debt.

11. Liability arising from any terrorism act, regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

8.0. Conclusion
If your business provides a highly specialized service or the service you render is highly sensitive and critically important to your client’s business, then you need Professional Indemnity policy. All human beings are prone to mistakes and you might commit errors and omissions in the performance of your duties. These risks can open you up to litigations and that’s where Professional Indemnity insurance becomes very relevant.

Furthermore, the activities of most professionals are guided by laws and legal precedents. That makes Professional Indemnity insurance even more critical to a professional firm’s long-term survival, as it may find itself being sued tomorrow for actions that are completely in line with today’s consulting expectations.

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