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Professional Indemnity – Call Yourself And Expert? You’d Better Be…
By: Darryl Walters
In business, information can be the most valuable product of all. It can also be
the most costly. In a society of enthusiastic litigants, anyone professing to be
an expert had better be able to prove it if intending to peddle the fruit of
that expertise.
Realistically, though, even experts can make mistakes, which is why Professional
Indemnity insurance is so important. Professional Indemnity insurance covers the
experts when they “get it wrong”. After all, inaccurate information about the
stock market can cause a client to lose a lot of money.
Likewise, an insurance broker who neglects to inform a client about the correct
level of insurance needed is placing that client in potential financial peril.
And, if a Business Consultant consults a business all the way to virtual
bankruptcy…well, you can see the red lights flashing…
So what types of experts should take out Professional Indemnity insurance? The
scope is limited these days only by the imagination of new expertise titles,
most of which end with the word “Consultant”. Some of the more recognisable
professions, however, are: solicitors, architects, insurance brokers, financial
advisors, tax agents and health professionals.
Basically, anyone who is paid to provide advice, based on the level of expertise
conveyed to the public, is vulnerable to claims being made against them if that
advice, when taken, goes “pear-shaped”.
For example:
• A firm of company registration agents was consulted by a business wishing to
use a particular name. The company registration agents advised that the chosen
name was available, however, a company with a similar name issued legal
proceedings. The company registration agents firm was forced to pay the claim.
• Structural drawings were prepared for the construction of steelwork. The
drawings allegedly contained errors causing delays in construction due to the
alterations required. Consequently, a claim was submitted for the cost of those
delays.
• A patient undergoing plastic surgery is rendered partially blind in one eye.
Claiming improper treatment, the patient is awarded a settlement.
Professional Indemnity premiums can be quite expensive, however, they are
usually also retrospective. Professional Indemnity insurance is written on a
Claims Made and Notified basis. This means that a circumstance or event, giving
rise to a claim, may still be covered even if it occurred prior to the policy
being effected.
Because of the nature of liability claims, it may be years after the event
occurred before a claim is actually made. As long as the insured has no prior
knowledge of a potential claim and the actual claim is made during the Period of
Insurance, the date of occurrence doesn’t really matter.
This differs from other types of liability insurance policies, which, for the
most part, are written on an Occurrence basis – i.e. the incident must have
occurred during the Period of Insurance, and a claim may be made at any time
afterwards.
Retrospective cover on Professional Liability insurance can be limited, however.
If the insurer chooses not to cover incidents that might have occurred in the
past, it may invoke a retroactive date limitation. This will limit cover to
incidents occurring only from the date specified – in most cases the date of
policy inception.
For example:
Archie’s Architectural Services held a Professional Indemnity policy with
Professional Indemnity & General (P.I.G.) from 1st July, 2000 until 30th June,
2005. Becoming frustrated with the somewhat pig-headed attitude to service at
P.I.G., they decided to go elsewhere. They switched to W.R.G (We’re Really Good)
Insurance and effected a Professional Indemnity policy with them.
W.R.G. decided to write the policy using retroactive date limitation from the
date of inception (i.e. 1st July, 2005). If the retroactive date limitation had
not been applied, W.R.G. would have been open to claims for incidents dating
back to when Archie’s Architects began operating. With P.I.G. also in the mix
there was the potential for some big courtroom bunfights!
Instead, W.R.G. will only consider claims made for incidents occurring from the
date of inception of the policy.
Obviously, a policy without a retroactive date limitation is more advantageous
to the insured, however, the policy will be more expensive and the insurer is
not obligated to offer it.
Professional Indemnity insurance, then, is a vital part of any business that
provides services and advice based on its proclaimed expertise. It not only
provides peace of mind for the business operator, but also for the clients who
faithfully rely on that expertise at some risk, either financially or
physically.
So, are you an expert yet?
About the Author:
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