Having dealt with businesses and contractors for over 20 years, we are asked some questions more than others - here are a few;
Subject to affordability, the level of Professional Indemnity cover you purchase depends on two main factors:
The size and types of clients
The level of Professional Indemnity cover you select should be adequate to cover the financial loss that your client could suffer by using your services. Your governing body/association usually have requirements on minimum levels of Professional Indemnity insurance that they require. This is usually against your company turnover.
The type of cover
If the Professional Indemnity cover you buy is on an aggregate basis, then the level of cover purchased would need to be higher than if it was on an “any one claim” basis.
The cost of Professional Indemnity insurance varies according to the level you purchase and the risk which Insurers need to cover.
Insurance Premiums in the UK are not subject to VAT. Instead, a different tax is applied - called Insurance Premium Tax (IPT). The rate of IPT has increased in recent years, and as of 01st June 2017 this was set at 12%.
An “Errors and Omissions” is essentially another way of referring to a Professional Indemnity policy. Professional Indemnity covers against Errors and Omissions.
Professional Indemnity is a “claims made” policy, which is why the cover needs to cater for claims that could arise retrospectively, as a result of work or project undertaken pre-inception of the current policy.
Once a Professional Indemnity policy is cancelled or lapsed, the policy and all the associated cover that it had provided disappears. You cannot claim indemnity for a new matter against an expired Professional Indemnity policy.
Yes, one of the key covers that Professional Indemnity Insurance provides is the cost of paying for lawyers to defend a claim. Be mindful however, to how this cover is provided.
Some Professional Indemnity policies will cover the cost of the Legal Fees incurred within your overall cover level (referred in a Professional Indemnity policy as “costs inclusive”), whilst other policies will provide greater cover by paying legal fees in addition to your indemnity limit (referred in a Professional Indemnity policy as “costs in addition”).
Unlike Public Liability, Employers Liability and other commercial insurances, Professional Indemnity wordings vary quite significantly.
Variation 1, by Profession:
There is usually a wording variations depending on what your Profession is. So, a traditional accountant will have a different professional indemnity wording than a surveyor; likewise, an IT consultant will also have a policy wording which is suited to their risk in relation to the work and industry they are involved in.
Variation 2, Association/Governing body Variation:
The next variation in the policy wording can be because of the governing body that you are a member of. The most common instances where this occurs is for Surveyors, where the RICS provides guidance on the minimum Professional Indemnity wording requirement; Accountants where the ICAEW/ACCA specify requirements on cover; and the SRA for Solicitors.
It is also worth noting that two individuals carrying out the exact same work, insured with the same insurance company can also be on different policy wordings/cover depending on the underwriter’s perception of the risk.
There are two bases in which a Policy Excess can apply on a Professional Indemnity policy:
Excess not applying to defence costs:
Essentially you should not need to pay any Policy Excess on spurious claims, where your insurers will only incur legal costs to defend your position.
The only time the Policy Excess comes into play is if your found liable and/or if insurers have to pay damages/compensation to a claimant.
Excess applying to costs:
This is where you will have to pay a Policy Excess as soon as legal costs are incurred, regardless of whether you are liable or not.
As a quick summary, the best option between the two by far is "any one claim", which means that for every insurance claim made against the policy insurers will allocate the entire policy limit for each insurance claim. So, ten insurance claims made in a single policy period = 10 x Your Policy limit.
Alternatively, "aggregate" means that your Professional Indemnity cover is restricted. If you have ten insurance claims on an aggregate policy, then your policy limit is capped. So, all of the ten insurance claims made in a single policy period, have to be funded by just the one policy limit.
We will only use your details to provide you with Insurance terms. As such we will pass your information only to appropriate insurers to obtain an insurance quote for you. If you pay for your premium using a finance facility, then your details may be used for credit referencing to check your financial standing when you apply for credit.
We will always contact you beforehand to ensure that you are aware that your Insurance Policy will automatically renew.
If you purchased a policy online, then you can log in to your account and download copies of your Policy Documents. Alternatively, contact us, and we can email you another set.
Yes, as soon as payment has been made.
The Professional Indemnity cover you buy online covers the UK only. If you require worldwide cover there are other factors that we need to make you aware of, such as, issues concerning Non-UK Contracts, and Jurisdiction.
Ideally, when you close your business, your Professional Indemnity Insurance should continue. Insurers will place the Insurance Policy in a "run-off" state. A "run-off" state means that you will still be covered, and the "run-off" condition notes that the business no longer undertaking work.
A claim is generally notifiable under a Professional Indemnity policy when the insured first becomes aware of circumstances that could lead to a claim. This could be anything from a verbal criticism to receipt of a statement of claim.
Cautionary signs include:
- Verbal complaints from a dissatisfied customer, or threats to take the matter further
- A client that refuses to settle or delaying settlement of your fees
- Letters or email of a complaint alleging neglect, error or omission
- A client that wants to change Professional Adviser
The interpretation of when this situation occurs is the source of frequent policy disputes between the insurer and insured, so always be on your guard.
It would be good business practice to regularly check with staff and partners if there are any problems that should be notified. This is particularly important prior to the renewal of a policy, as a change of insurers may occur which could subsequently result in a potential non-disclosure of a notifiable event.
In the event of any criticism by your client, or if you become aware of circumstances which could give rise to a claim against you, you must notify us immediately. You will need to contact us even if you believe that your actions have been beyond reproach and that a claim could never succeed.
Once you notify us of a possible claim, we will advise how best to conduct future dealings with the client. Please do not discuss or admit liability.
Any correspondence should be passed to us as soon as possible, and unanswered. Where a letter of claim is received, do not send an acknowledgement, but rather send it to us with your draft intended response. The notification should contain an explanation of the events surrounding the claim and your thoughts and views.
Professional Indemnity claims tend to be complicated, and the claimant usually determines the time that these claims take to process. For example, you might find that once a claimant has made a claim, they may then stay silent for up to six years before pursuing the matter.
Professional Indemnity Insurance, Directors and Officers insurance and Medical Malpractice insurance are nearly unique in operating on a "Claims Made" basis. This provides cover for claims made (and reported to the insurer) during the current live policy period of insurance only. You cannot claim a Professional Indemnity policy which has expired. If the insurance policy ceases, so does the cover.
In contrast, other liability covers such as Employers Liability Insurance provides indemnity for "losses occurring" during the policy period; so, you can submit a claim against an expired policy.
As Professional Indemnity policy is underwritten on a "Claims Made" basis, you should ensure that you are familiar with the concept of:
- Retroactive cover on your Professional Indemnity insurance policy
- Ensuring a fair presentation is made to insurers advising them of contracts/activities which were previously carried out but no longer carried out
- The requirement of "run-off" cover
- Changing and maintaining the level of your Professional Indemnity level
- The importance of notifying a Professional Indemnity incident as soon as possible