Miscellaneous businesses and PI insurance

In addition to the main sectors covered on this web site there are many other professions which have professional indemnity insurance wordings designed specifically for their profession - some of which have regulatory requirements set out by their professional body or regulator.

IFAs, insurance brokers and solicitors are three, and Hammond PI offers a range of PI solutions to these professions. Proposals can be accessed by visiting our "Download Proposal" page or by registering an interest on the "Register your Renewal" page under Resources. We would be pleased to provide terms and information upon request.

All businesses not falling into one of the recognised PI classes would be categorised as being a 'miscellaneous profession'. There is a proliferation of new professions and some of these will become standard classes in due course. Many of these risks are sole traders offering specialist services, a large number of whom fulfil services that are now out-sourced by former employers.

How do insurers rate a risk and what do they look for?
Insurers are interested in the type of work carried out, and look in particular at the potential for risk each type of business activity carries. The more high-risk work undertaken, the higher the rate insurers apply. This rate is then related to fee income to establish a premium for the risk.

Higher fees inevitably mean higher premiums. However, if exposure to high-risk areas of work reduces whilst fees increase, premiums may not increase proportionally. It is important to appreciate that if you cease a high-risk activity, your premiums will not automatically reduce, as the claims made nature of PI means the risk stays with the insurer for some time into the future.

With standard professions, insurers expect standard qualifications. With miscellaneous businesses, principals may not be qualified in the formal sense at all. In these instances, sight of a CV is important. Because many non-standard businesses offer bespoke services, a resume of the business activities is useful as a record of experience.

Every insurer has a different perception of the type of business they seek. Some will write very nearly anything while others want specific business only. It is important therefore, that you use a specialist Pi consultant who has access to a wide range of PI insurers and can ensure your business is accessing the insurers best placed to insure your risk.

Here are some examples of miscellaneous businesses:

• Actuaries
• Agricultural consultants
• Bailiffs
• Freight forwarders
• Interior designers
• Management consultants
• Naval architects
• Patent agents
• Property managers
• Publishers
• Recruitment consultants
• Safety consultants
• Scientific consultants
• Trade association
• Yacht surveyor
• Yacht broker

What should you look for in professional indemnity insurance?

Whereas PI wording for standard professions (such as chartered accountants), will cover most of the activities that an accountant would be expected to undertake, a standard miscellaneous wording simply cannot take account of the thousands of different businesses that might require cover. A good description of your business to insurers is therefore crucial, as an insurer will only cover the activities that are declared and accepted - and no others. You cannot assume that any new areas of business you undertake will be covered unless they have been specifically approved by your insurers.

As many 'miscellaneous' business are unique, insurers try to understand exactly what a firm is doing, and their level of exposure to claims. This means that you may be asked to complete more supplementary questions than usual. Whilst this can be laborious, it is important that you paint as clear a picture of your business as possible.

Many firms falling into this class find it necessary to sub-contract work to outside consultants. If this applies to you, consider whether these consultants will be indemnified under your policy or will your insurer be able to exercise rights of subrogation against the sub-contractor? If the latter applies, do the sub contractors have PI of their own? If the former is the case, check your cover carefully. In any event, it is advisable to have written contracts with sub contractors, setting the position out clearly. Unfortunately we often see situations were the sub contractor and the insured both assume they are both covered, when in fact, this is not so.

Policy wordings

Miscellaneous wordings are by no means the same. They usually offer very basic, no frills cover and need numerous extensions to bring them up-to-date. Always ask to see a copy of the wording before you enter into a policy and ensure the person arranging the policy understands its various meanings. If you are particularly exposed to bodily injury or environmental claims, check that these aren't excluded or restricted within either the basic wording or any applicable clauses.

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The usual cover

Most miscellaneous wordings offer an indemnity clause limited to claims (including claimants' costs), arising out of any negligent act, error or omission. Many have costs- inclusive limits of indemnity that are eroded by the insurer's costs and expenses incurred in the investigation, defence or settlement of claims. Many also have costs-inclusive excesses that apply to the insurer's costs and expenses incurred in the investigation, defence or settlement of claims - even if there is no third party claim made. Check the situation carefully if this detail is not immediately clear.

The usual exclusions

Typically, miscellaneous policies will exclude things that should have more specific insurance:

• Employers liability
• Bodily injury/property damage, except where caused by a breach of professional duty
• Property owners, etc.
• Vehicles, etc.
• Products liability
• Contractual liability - this is liability assumed under any express warranty, agreement, guarantee or the like unless such liability would have attached anyway. Take care with agreements such as collateral warranties and consult your insurers
• Insolvency/bankruptcy of insured
• Circumstances known at inception
• Fines and penalties
• Claims by financially associated parties - some insurers will cover these claims if they emanate from a third party
• Radioactive contamination, etc.
• War

There are also exclusions that many insurers will amend, or simply do not have in the first place:

• Dishonesty of employees
• Seepage and pollution - watch out - many insurers maintain this exclusion even where there is a clear and insurable environmental exposure
• Date recognition

The usual extensions

• Libel and slander
• Loss of documents
• Dishonesty of employees
• Unintentional breach of confidence
• Infringement of copyright

Special extensions/conditions

• Cover for ombudsmen's awards
• Collateral warranties
• Housing Grants, Construction and Regeneration Act 1996 (in the UK where adjudication awards are likely, such as construction professionals)
• Innocent non-disclosure

Presenting your proposal for insurance

The presentation of your business to insurers is very important both in respect of the facts i.e. the things for which cover is required, and the way in which you do your business, both of which influence an insurer's perception of your business and the risk it poses to them.

We would always recommend that in addition to the proposal form you are asked to complete, you provide supporting documents with your proposal such as:

• A CV showing the principals qualifications and experience in the areas of business to be covered
• Any Terms of Business or terms of engagement you use
• A copy of your corporate brochure
• Details of your website
• An insurance history listing all material changes to your business since you first had professional indemnity insurance. For example, mention any previous businesses for which you require cover. It is possible you may be asked for a claims history from the previous business or a copy of its last completed proposal form.

Don't forget to include the names of any businesses with which you have merged, or any that you have acquired, as these will need historic cover. Likewise you may have ceased to offer certain services for which cover is still required.

Keep a written record of all requests for cover to be extended and any historic or material changes to your business. This information can be updated each year and provided as an addendum to the proposal. Any certification the business may have i.e. accreditation by a governing or standards council, is also well worth disclosing.

Keep your presentation neat and tidy. Bear in mind that an untidy presentation may be construed as an untidy business. Allow yourself time to complete the presentation and remember that a hard copy always look better that a faxed one sent in at the last minute.

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The Professional Indemnity Insurance market is relatively small so at the point of renewal, concentrate on asking only one or two specialist brokers to quote. Bombarding the market with requests can result in your proposal being locked out of some markets.

Renewal is an ideal time to review your insurance requirements. As your business grows and your contract values increase, it is wise to consider what could go wrong and how much it may cost to settle a claim - and also cover the attendant legal costs. Some policy wordings provide a limit of indemnity with legal costs in addition to the limit. Others provide limits of indemnity which include the legal cost. However, the cost of litigation is high and can eat into the limit of indemnity provided if costs are inclusive.

Associated links

• Institute of Management Consultants
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• The British Chambers of Commerce
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