GOT A QUESTION FOR US?
Red Sands Insurance Company (Europe) Limited (RSE). For the full protection of UK insurance customers, RSE are members of the Association of British Insurers, The Financial Ombudsman Scheme and the Financial Services Compensation Scheme, which means consumers are protected on all fronts. RSE were Licensed by the Gibraltar Financial Service Commission in January 2004.
Generally, Professional Indemnity is not a legal requirement. You will not get prosecuted for not holding Professional Indemnity Cover. However, depending on what your profession is, there maybe regulatory requirements imposed by your association or governing body to hold Professional Indemnity as a compulsory insurance.
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 the tax is referred to as 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:
Firstly, 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 an excess can apply on a Professional Indemnity policy:
- Excess not applying to defense costs:
Essentially you should not need to pay any excess on spurious claims, where your insurers will only incur legal costs to defend your position.
The only time the 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 an 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 claim made against the policy insurers will allocate the entire policy limit for each claim. So, 10 claims made in a single policy period = 10 x Your Policy limit. Alternatively, “aggregate” means that your Professional Indemnity cover is being restricted. If you have 10 claims on an aggregate policy, then your policy limit is capped. So, all of the 10 claims made in a single policy period, have to be funded by just the one policy limit.
Personal & Contact details
We will contact you at least 21 days before your cover is about to expire with instructions on how to renew. Before renewal, we will assess if there have been any changes in your business since taking out the policy and review your cover requirements.
We will always contact you beforehand to ensure that you are aware that your Policy will automatically renew.
If you purchased a policy online, than you can simply login to your account and download copies of your Policy Documents. Alternatively, please contact us and we will email you another set.
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 should continue, but insurers will place the policy in a “run-off” state. This means that you will still be covered, and the “run-off” condition notes that no more work is being undertaken by the business.
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
- Letters or email of complaint alleging neglect, error or omission
- A client that refuses to settle or delaying settlement of your fees
- 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 a policy renewal, 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, it is essential that you notify us immediately, even if you believe that your actions have been beyond reproach and that a claim could never succeed.
Once we have been notified of a possible claim we will assist you in providing guidance on 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 notification and your thoughts and views.
Professional Indemnity claims tend to be complex, and the claimant usually determines the length 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 6 years before continuing to pursue 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 make a claim against a Professional Indemnity policy which has expired. If the policy stops, so does the cover.
In contrast, other liability covers such as Employers Liability Insurance provide indemnity for ‘losses occurring’ during the policy period; so, you are able 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
- Changing and maintaining the level of your Professional Indemnity level
- Ensuring a fair presentation is made to insurers advising them of contracts/activities which was previously carried out but no longer carried out
- The importance of notifying a Professional Indemnity incident as soon as possible
- The requirement of “run off” cover