Professional Indemnity FAQs
What is the difference between a “Civil Liability” policy and a “Negligence” policy?
A negligence based policy provides coverage for breach of duty of care by way of negligent act error or omission. There is no coverage for claims based on breach of contract or statute law.
A Civil liability policy does not set boundaries (other than the exclusions) as to the nature of the wrongdoing. It may encompass more than just negligent acts errors or omissions and include breach of duty of trust, conflicts of interest, breach of statute law and defamation. These may not necessarily arise from negligence and therefore may not be covered under a negligence policy.
Most civil liability policies do however contain a greater number of exclusions so the benefits over a standard negligence form are considered minimal.
What is the difference between a “Costs Inclusive” and a “Costs Exclusive” excess?
Costs Inclusive - The excess applies to the aggregate of damages, defence costs and penalties (if insured).
Costs Exclusive - The cost of defence is paid in full by Insurers regardless of any excess provision.
What does “Run Off Coverage” mean?
Run Off Coverage applies where a company ceases to trade, sells its assets or merges with another entity. The policy provides coverage specifically for any acts occurring prior to the date on which the company/entity ceased trading, sold its assets or merged. It is common also where individual directors of companies or partners of professional firms have retired or relinquished their positions.
What does the term "Vicarious Liability" mean?
This occurs where liability is imposed on one person for the wrongful acts of another. An example of this is an employee of a company providing negligent advice on its behalf. The legal basis being that a “principal” is liable for the acts of its “agents”.
Do Professional Indemnity policies provide coverage for claims alleging the non payment of trading debts?
No. This is considered a risk of conducting business, not associated with the provision of professional services.
What is meant by "Retroactive Coverage" and "Retroactive Date"?
A Professional Indemnity policy may provide coverage for negligent acts committed prior to the policy inception date provided they are not known to the insured at the time of policy commencement and are notified as soon as possible within the policy period. The retroactive date is the date in the past beyond which acts committed by the insured will not be indemnified by the insurer.
For example; An engineer provides structural design services for a building complex in January 1998. In December 1998, halfway through its construction it becomes apparent that that it is not structurally sound, requires demolition and re design.
The engineer purchases professional indemnity insurance in October 1999 with a Retroactive Date of 1 January 1999. He approaches his insurer in November 1999 having received a letter from the developer holding him liable for losses arising from the negligent design work.
The insurer declines his claim for legal defence costs on the basis that the retroactive date is after the date on which the design error occurred and became apparent.
What information, other than a fully completed insurance proposal, is required in order for the insurer to determine premium and scope of coverage?
Where the proposer is a professional firm or consultancy, a copy of the proposers marketing literature, business profile and standard contract conditions for the provision of professional services is required. Manufacturers, exporters and suppliers of products should provide similar information including a copy of standard conditions of sale and any agreements with distributors.