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?
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