The terms “any one claim” and “aggregate” allude to the basis of a professional indemnity policy’s coverage.
An ‘any one claim’ policy covers any individual claim made during the insurance term up to the full limit, whereas a ‘aggregate’ policy covers all claims made during the insurance period up to the full level.
To put this in perspective, if two £75,000 claims are filed against a £100,000 any one claim professional indemnity coverage, the insurer will cover both claims because they are both less than the £100,000 limit.
If a £100,000 aggregate professional indemnity policy has two £75,000 claims, the insurer will only pay up to the £100,000 limit. The remaining £50,000 would have to be funded by other means because the claims total £150,000.
Although filing a single claim is generally thought to be the more comprehensive option, the basis of coverage varies by insurer and depends on your business activity.
What does ‘claims made’ mean?
A ‘claims made’ policy covers claims that are filed and reported to the insurer within the policy period.
This implies that as long as the wrongful act occurs during the policy’s coverage period and you report it to the insurer during that time, you’ll be protected. If the insurance is canceled or not renewed, the coverage ends, and any subsequent claims regardless of when the wrongful act happened are not covered by that policy. As a result, it’s critical to have professional indemnity insurance in place even when there are no contracts or employment to safeguard your company. All professional indemnity insurance policies sold by Markel Direct are based on claims made.
This is in contrast to a ‘claims occurring’ policy, which covers claims that occur during the policy period. Professional indemnity insurance is rarely, if ever, written in this manner. It’s more frequent in plans covering public liability and employer’s liability.
What is ‘run off’ cover?
Run-off coverage protects you from claims of professional negligence made after your company has shut down. This could be the case if you’ve sold or closed down your company. It’s especially crucial for retiring business owners to think about because, without run-off coverage, they’d have to pay for the claim’s defense out of their own pocket.
How do professional indemnity claims work?
Whether you believe you are in the wrong or not, if a customer complains about a probable mistake you made on the job, you may be subject to legal action. Professional liability insurance aims to safeguard your assets as well as your reputation.
This type of indemnity insurance covers both the costs of defending a claim and the costs of a claim for compensation the firm is legally obligated to pay (e.g., a settlement negotiated out of court or damages and fees awarded in court).
Our professional indemnity insurance consultants can help you get the right business insurance to protect you from unintended negligence. In the event of a claim, we’ll act as your champion to ensure a just and timely outcome.
How does professional indemnity insurance work?
Professional indemnity insurance is frequently sold in a range of coverage limitations. Consider the following factors when determining how much professional indemnity insurance you require:
The quantity of coverage needed will be determined by your client’s level of exposure.
If you work in an industry where professional liability insurance is required by law, you should know that your profession has a recommended level of coverage. You can double-check with your regulator to make sure you’re covering the required quantity.
Do I need both professional indemnity and public liability insurance if I am starting my own practice?
Starting your own practice can be a thrilling experience, but it can also be intimidating, especially given the high startup expenditures. When it comes to insurance, you should think about whether you can afford to go without it. Towergate Insurance’s Faith Chapman discusses why professional indemnity and public liability insurance are so important:
Professional indemnity insurance can protect you against any claims brought against you if you are accused of Professional Negligence, which can include things like giving inaccurate advice or making a suggestion, breaking a professional code of conduct, losing documents, or violating confidentially. A client may claim that they were damaged as a result of an undesirable effect they had as a result of a recommendation you made during a session. This type of policy will cover the costs of defending you against this allegation, as well as the damages paid if the customer is successful in suing you.
Public liability insurance will cover you in the event of a claim for accidental injury or property damage to a client or a member of the public, as well as loss or damage to public property. If you spilled coffee on a client’s laptop, for example, or if a client trips over while visiting you, this coverage would cover the legal costs of defending you, as well as pay out if the customer was successful in suing you.
What is not covered by professional indemnity insurance?
.css-10508as.css-10508as:hoverIf a company is sued by a client for a mistake they made in their work, professional indemnity insurance can cover compensation payments and legal bills. In most cases, the compensation payout will take into consideration the client’s financial loss.
Reliance General Insurance Company:
Because of its speedy documentation and broad coverage, the Reliance Professional Indemnity Insurance Plan is highly popular. All legal costs incurred as a result of legal issues stemming from the services given by professional service providers or professionals are covered. Reliance’s Professional Indemnity Insurance also allows for mid-term reductions and increases in the sum insured.
New India Insurance:
New India Assurance also offers Public Liability Insurance products. These insurance are designed to protect a professional’s finances in the event of a legal liability. Only civil liability claims are covered by the policy. These legal liabilities may arise as a result of your negligence or errors, which result in the death or injury of a third-party or damage to their property. Group coverage are also available through New India Insurance Professional Liability Insurance.
TATA AIG General Insurance Company:
TATA AIG Errors & Omissions Insurance Cover or Professional Indemnity Insurance Cover protects professionals against legal liabilities. While providing professional services, you can file a claim for negligence, omissions, or errors. Law firms, media companies, consultants, financial institutions, IT companies, BPOs, and other professions can all benefit from the Public Liability Insurance policy.
United India Insurance General Insurance Company:
United India Insurance Company provides Professional Indemnity Insurance to professionals such as lawyers, accountants, architects, engineers, and doctors, as well as businesses such as clinics and hospitals. The insurance provider’s policy is for a period of 12 months.
ICICI Lombard:
Professional Indemnity Insurance Policies from ICICI Lombard are tailored specifically for doctors. These plans cover legal proceedings arising from a patient’s death or damage as a result of negligence, error, or omission. The premium for this coverage is determined by the indemnity limit, the ratio of limits, and the risk category of the attending physician. The policy’s jurisdiction is restricted to the country’s borders.
Professional indemnity insurance shields you from any legal proceedings or threats brought against you by a client who has suffered a significant loss as a result of your mistakes or bad advise. It also spares you from having to pay a large sum of money to the clients as compensation for their losses. The policy also protects you by preserving your professional image in the eyes of the general public as well as current and potential clients. This insurance allows you to control your risks while also providing room for progress by continuing to provide consultancy and services to keep your firm afloat. Get professional indemnity or liability insurance to protect your company and yourself from the embarrassment of failing as a result of big client losses.
How long do you need professional indemnity insurance?
The key to comprehending run-off cover is to comprehend the “The protection’s “claims made” nature. Given that you’ve presumably been buying professional indemnity (PI) insurance for a while, you’ll be aware that all PI plans are underwritten on what’s known as a risk basis “on the basis of claims made”
Because professional indemnity insurance is based on ‘claims made,’ you must always have a policy in existence to ensure that you are covered if a claim is filed now for work done in the past. This is especially crucial in partnerships because liability isn’t limited and the partnership can’t easily be dissolved.
Because a business’s or partnership’s prior liabilities do not go away when it closes, insurance must be maintained long after it has ceased operations to ensure that any future claims are covered. Here’s where run-off insurance comes in handy.
One issue with run-off insurance is that a premium must be paid each year despite the fact that there is no more income flowing into the company to pay it.
In most cases, the premium in the first year following closure is the same as in the previous year of trade. That’s when the chances of a claim being notified are greatest.
From the standpoint of the insurers, the risk will gradually reduce year after year. Premiums should start to drop after the first year, and we would generally expect them to drop by 10% to 20% per year, assuming no claims are filed and market rates do not rise.
Statistically, this sort of insurance has a larger risk, yet it is of little value to insurers. People may only buy insurance for a year or so after the company closes, when they believe the danger of a claim is the greatest. As a result, there is no interest or competition in the insurance market to provide this coverage, and the incumbent insurer at the time of closure is usually the one who provides it on a “accommodation” basis.
Some regulators make it a condition of insuring its members (e.g., accountants and solicitors) that the insurance firm offer a specific number of years run-off protection after their member ceases to practice, but the incumbent insurer is normally free to do so.
PI insures businesses, whether they are limited liability companies, partnerships, LLPs, or single traders.
It includes the company’s principals or partners, directors, and current and former employees.
A run-off PI insurance will offer continued coverage for the expense of defending any claim brought against individuals covered by the policy, as well as reimbursement for any losses incurred if the claim is upheld against the insured parties.
The most common cause for run off insurance, which is required by small businesses and single traders, is retirement. In larger enterprises, the business is frequently sold or taken over by a younger principal who keeps the PI Insurance and the PI policy. This isn’t always the case, as the new owner might not be willing to assume the company’s inherited liabilities.
As a result, it may be required to have a run-off insurance in place after closure to cover any future claims.
When a professional practice closes, it’s important to keep PI insurance in place to cover any claims that may arise after the practice has shut down.
There are a variety of reasons why a professional firm may close, including foreclosure, sale, merger, or acquisition, or the proprietor just deciding to stop trading and retire or do something else instead.
In all of these circumstances, run-off insurance is either beneficial, prudent, or required by law.
Claims for losses caused by a negligent act can be made under contract law or tort law, and a professional’s duty to their client does not always end when the corporate entity does. Long after the business has closed, a client can file a claim against the professional.
The professional’s responsibilities, which were formerly clearly defined and distinct, have evolved with time. Accountants, surveyors, engineers, solicitors, and architects were once considered ‘professionals,’ but now anyone who provides a wide range of services is considered a professional.
Clients who claim reliance on the services or advice supplied could hold anyone posing as a specialist, expert, or consultant liable for negligent acts, errors, and/or omissions.
Once you’ve concluded that you need run-off insurance for your company, you’ll need to notify your present insurer.
If your policy isn’t due to be renewed for a while, you’ll need to notify your insurer that you’ve stopped trading. They will add an endorsement to your policy saying that any service or work performed after that date will not be covered. The insurer may give run-off renewal conditions at the next renewal and may require you to submit a proposal form, as in the past, to establish what work you did from the previous renewal to the date your firm closed.
You can then choose whether to continue with the run-off policy for another twelve months or not.
If you renew the policy, it should have the same terms and conditions as before, but it will also have the updated endorsement specifying the run-off date. As long as the work was completed prior to the run off date, insurers will respond to any claims informed or made against you during this new policy year.
If you do not take up a new policy or make other arrangements, your professional indemnity insurance will expire, and any claims made against you for previous work will be uninsured. Even fictitious or speculative allegations necessitate a defense, and without Professional Indemnity Insurance coverage, they can be costly.
Historically, run-off insurance was maintained in this manner every year for up to six years. Many professional bodies require their members to keep run-off PI for six years, thus this is a suitable baseline to utilize for all professions. However, there are other considerations to be made when determining the length of time that run off must be maintained, and these considerations may lead to a shorter or longer period of cover being more appropriate.
There is no one-size-fits-all answer to this question, and it will differ from person to person. Aside from the advice supplied by the various professional organisations, the applicable limitation period set by law – the time limit within which any claimant must initiate proceedings against a professional – is a crucial factor in deciding the length of coverage.
A professional indemnity policy may cover both contractual and tort liability. Clients can sue for negligent acts up to six years after the work is completed, which is the time limit for a breach of contract claim. Clients can also sue if they have been harmed or lost money as a result of negligent counsel or other activity within the six-year time limit set by tort law. If the professional in question is deemed to owe them a duty of care, non-clients can file a tort suit.
Because of the time lag between a negligent act and the resulting loss or harm, a tort claim can be filed several years after the contract-based claim deadline.
If the parties’ agreement is written as a deed, the time limit for filing a contract claim can be extended to 12 years after it is completed, while the time limit for filing a tort claim can be extended to 15 years if claimants can show there was hidden damage that they were unaware of and could not reasonably be expected to discover at the time.
Collateral and Appointment Many of these contracts state in contract what the professional’s obligations with regard to coverage and periods, and if signed as deeds, they can extend the time that Run off insurance needs to be held after the practice closes. Such interactions should be carefully considered, and legal advice is always recommended.
Although run-off is typically obtained from the incumbent Insurer as a 12-month policy each year, it is also feasible to purchase a longer-term insurance with a single up-front cost.
Only a few insurers offer run off cover on this basis, which can be purchased for up to six years. We always recommend that businesses and its founders obtain legal counsel regarding their business’s duties and obligations, including any ongoing contractual obligations. They can then choose the length of coverage they want.
- Premiums paid in advance from the closing business, which has shown to be more efficient on occasion.
- If you have to file a claim or inform a circumstance, your premium will not increase.
- Because your premium has already been paid, any changes in market rates will have no effect on you.
- This strategy is frequently less expensive and more cost-effective (over time) than purchasing annually.
- The biggest danger is that the insurance may not be around for another six years. However, before submitting any proposal, we conduct due diligence on the insurer’s financial strength and stability.
- In the short term, the strategy will certainly be more expensive than acquiring run off for only a year.
- If the principle returns to work, the option of covering earlier work on a new PI policy is no longer available, which could have been a more cost-effective choice.
Is professional indemnity the same as professional liability?
Professionals must make decisions every day, and some of these decisions may be questioned for years. Professional Liability (also called as Professional Indemnity) allows the entire practice team to focus on their work without having to constantly glance over their shoulders.
Even if the error that caused the claim occurred years ago, Professional Liability insurance covers claims that are submitted while the policy is in effect. As a result, it should be kept up to date; otherwise, there will be no protection against the unintended results of previous efforts.
Is professional indemnity insurance a legal requirement?
Professional indemnity insurance is not required by law, but professionals in specific industries should view it as one of their most important business needs. This is because some industries are far more likely than others to experience service-related disagreements. It’s possible that certain clients will make this insurance a contractual obligation, or that your industry regulator would deem it necessary.
- Your company serves clients with professional services such as expert advice and consulting.
- Professional negligence claims may be made against you as a result of your work. This could be the case if you provide training in a sensitive field like first aid.
- You work as a freelancer, contractor, consultant, or provide self-employed services.
Professional indemnity insurance is required by their respective industry organisations for accountants, financial consultants, surveyors, engineers, and healthcare professionals. Contractors who supply services to a certain industry, such as the energy sector, will almost certainly require mandated insurance.
However, this does not mean that other sorts of enterprises should ignore PI insurance. Journalists and media firms may face intellectual property disputes, and IT consultants may inadvertently break contracts while installing software updates. If you run the risk of clients bringing you to court over a disagreement, professional indemnity insurance is often a good option.
Who can get professional indemnity insurance?
Professional Indemnity Insurance Insurance is a vital sort of protection for a business, but it is especially important for those who work in professions that need them to give advise on a regular basis. Anyone who “provides expert advice or services according to a recognized discipline” qualifies as a professional. Whether your company is large or small, a claim for compensation as a result of poor professional advice or services can be devastating.
Defining Professional Indemnity Insurance
Professional Indemnity Insurance protects against claims for liabilities owing to a third party (usually a client of the insured) for losses incurred by the third party as a result of the insured’s provision of ‘professional services.’ To ‘indemnify,’ it means to compensate the insured for any liability payable to a third party as a result of the loss. As a result, Professional Indemnity Insurance is a type of insurance that can protect your company from claims for financial loss, bodily/personal harm, and/or property damage arising from an act, error, or omission in the performance of the professional services covered by the policy.
For example, an architect’s incorrect designs, a migration agent’s incorrect advice on visa requirements, and a work, health, and safety consultant’s failure to detect unsafe work conditions can all result in a financial loss or bodily injury to a client, and thus a potential claim for compensation against the insured.
Why is Professional Indemnity Insurance Important?
In your line of work, it’s possible to inadvertently break privacy or confidentiality, omit information, make a judgment error, or give incorrect advice. A simple act, error, or omission might result in a claim against your company, making it critical to safeguard yourself, your company, and your reputation.
Professional Indemnity Insurance is essential since the legal costs of defending any claims might be substantial. Small firms, in particular, might struggle to find the money to pay for court and other legal bills to defend their business, regardless of whether they are found guilty or not for damages. Court proceedings can go on for years, with recurring fees that can have a substantial financial impact on your company.
Professional Indemnity Insurance is crucial because it protects you from having to shoulder the full cost of these claims. This will allow you to keep your business up and running as usual, with little inconveniences.
Who Needs Professional Indemnity Insurance?
Lawyers, accountants, bookkeepers, architects, engineers, and marketing specialists are just a few of the professions that can benefit from Indemnity Insurance. Professional Indemnity Insurance is less common in professions with more hands-on work, although it is nevertheless necessary in some instances. Agricultural consultants, event managers, life counselors, and marriage celebrants are just a few examples.
As a Professional in whichever field you work in, you are responsible for ensuring that your advise or services are of high quality. As a result, if you give your client inaccurate advice or services, you could be held accountable for any damages that occur as a result of this.
The Cost of Litigation
Many companies undervalue the true expense of legal action. The cost of defending yourself may be in the $100,000 range – or much more. Many businesses, particularly small businesses, would find it difficult to cover these expenses.
For example, in one case handled by CGU, a professional was involved in a litigation that lasted several years and cost $1 million in legal fees alone.
His insurance payment covered all of the charges, and the firm took care of the issue. More crucially, he was found not guilty of negligence.
Protecting Your Professional Reputation
This exemplifies a crucial aspect of professional indemnity: reputation defense, which is often overlooked.
In such legal cases, the professionals involved may have a predisposition to strive to resolve the issue as swiftly as feasible. While it may appear to be the simplest approach, it’s crucial to evaluate the long-term consequences of this decision. It could be interpreted as a confession of guilt and have a negative impact on your reputation.
Professional indemnity insurance allows you to explore legal channels to clear your name and defend your reputation while having the support of a legal and insurance team behind you.
When your livelihood depends on giving advise, the correct professional indemnity insurance can provide you with peace of mind, stability, and, most importantly, protection for your prized reputation.
Final Word
Professional Indemnity Insurance gives businesses the peace of mind they need to keep functioning confidently, regardless of their profession or size. More information about Indemnity Insurance can be found on our website here.
With the correct insurance, you can safeguard your professional reputation, your business, and your livelihood. Contact CGU today for more information on Professional Indemnity Insurance.