Duty of Care
Any professional owes a “Duty of Care” to anybody who might reasonably rely on his or her service or advice. The same Duty of Care is owed whether a fee is charged or not, even if it is for an obvious secondary function or service.
What is PI?
PI insurance is a cover against allegations of breach of Duty of Care. Should legal liabilities be established against a professional, PI insurance will, subject to its terms and conditions, pay for the damages together with any costs awarded against the defendant.
PI insurance is a fairly recent development, but the surge in the need for professional indemnity insurance as a result of heightened consumer awareness and the advent of Legal Aid has resulted in many professional bodies introducing PI cover as a prerequisite of membership.
Claims Made Policy
The majority of PI insurance policies are written on a “claims made” basis. This means that the policy will respond to claims first made within its duration, even though the work, which caused the loss, may have been undertaken before hand.
An insurer for a client who has not previously held PI insurance may not be willing to cover claims that arise from work undertaken prior to the issue of the policy. Retroactive cover may then need to be secured, covering past work done by a firm. An insurer might decline to offer retroactive cover and offer the first time PI buyer cover from the inception date of the policy. This is known as a Retro Date Inception (RDI).
These regulations place more stringent responsibilities on the designer in respect of health and safety. PI policies exclude Criminal Prosecution Cover, however, if full details are provided to PI Underwriters, most Underwriters will extend the PI Cover to include the role of Planning Supervisor plus the legal costs of defending criminal prosecutions in respect of any alleged breach of the CDM Regulations.
Loss of Documents
Loss of documents is another common extension to PI policies. It pays for costs arising from the loss of paper and computer records, maps, certificates, etc.
Libel and Slander
This is a prudent extension to the PI policy for any professional who needs to be open in his views and comments. Libel and slander are written and verbal statements of a defamatory nature, which misrepresent and harm the reputation of another.
Common Terms And Phrases
Common phrases used in PI insurance include:
Limit of Indemnity
The highest possible compensation paid out under the policy should a claim be made. The cost and expenses incurred in the action can either be included within the limit of indemnity or in addition to it.
In the aggregate or in all
Here, the limit of indemnity stated is the total amount of money that will be paid out under the policy in the given period. For example, if the limit is £250,000 and an early claim results in a payment of £200,000, the cover for the duration of the policy stands at only £50,000.
Any one claim or each and every claim
Here, every claim made can potentially result in the payment of the stated limit. For example, if the limit is £250,000 and an early claim results in a payment of £200,000, the limit still remains £250,000 no matter how many claims are made against the policy. It is normal to treat all claims arising out of one set of circumstances as one claim for these purposes.
Excess or deductible
In common with many other types of insurance, policies may have a variable amount for which you would be responsible under any claim. This is known as the excess or deductible.
Collateral liabilities, Collateral Warranties, Duty of Care Agreements, etcetera
Recently, contract wordings have placed additional or increased responsibilities on professionals. A standard PI insurance policy would not cover additional responsibilities assumed under contract. Insurers may be prepared to extend policies to cater for some or all of the additional responsibilities assumed under contract providing that these are fully disclosed.
It is essential that any claim or incident likely to lead to a claim should be notified as soon as possible. The difficult question here, is: “What actually constitutes a notifiable circumstance or claim?” You may receive complaints, many of which, with diplomatic attention, will not lead to a claim. It is in your best interests to notify to the insurer any such circumstances in order that it may be decided whether or not any action needs to be taken and, indeed, assistance can often be provided in reaching an amicable solution.
Please note the above is a general resume only. For the full picture you should always refer to your policy document or Professional Indemnity Advisers to establish the precise terms, conditions and exclusions relating to your own specific circumstances.