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Getting to grips with the terminology for Professional Indemnity insurance

Professional Indemnity is often seen as a complex insurance product. Here we look at some terms used in PI policies.

Civil liability wording – this starts with a broad insuring clause that offers cover for a wide range of liabilities unless specifically excluded

Any one claim – the limit of indemnity applies to each and every claim

Aggregate – limit of indemnity applies across all claims during the policy period

Claims made – the policy covers claims notified during the policy period, irrespective of when the work that led to the claim occurred

Run-off – protects a business against claims after it has ceased trading

Negligence wording – starts with a limited insuring clause, covering claims alleging negligence, and will then often extend cover beyond this.

 

Your 5 point guide to Professional Indemnity insurance

Professional indemnity (PI) insurance has become increasingly common for today’s professionals. It protects you against claims made against you by your clients for financial loss that has arisen from work undertaken by you. This could be negligent advice, poor design work or mistakes in specifications.

From engineers to IT consultants, accountants to heating and ventilation experts – if you offer your knowledge, skills or advice as part of your work or services to third parties, you should hold PI cover.

PI policies typically offer a suite of additional covers, such as loss of documents, Ombudsman awards and unintentional breach of intellectual property rights.

Here are 5 things Arlington recommend considering when arranging Professional Indemnity insurance.

  1. Looking at different approaches to cover

There can be significant differences between wordings; often the differential is the insuring clause itself. Whilst most policies are now written on a ‘civil liability basis’, some policies may be written on a ‘negligence’ basis with cover excluding certain perils.

  1. Setting appropriate limits of indemnity

If a minimum limit isn’t specified by your professional body, such as the Royal Institute of Chartered Surveyors (RICS) or is stated within your client contracts, you will need to contemplate worst-case claim scenarios. This could be influenced by factors such as the type of work you undertake, potential legal costs and how you have limited your liability, if at all, through contract.

  1. Aggregate or any one claim?

Most policies are now written on an ‘any one claim’ basis meaning each claim can be up to the full limit of indemnity. However, policies can also be written on an ‘aggregate’ basis where the limit of indemnity applies across all claims during the policy term and each claim will gradually erode the annual aggregate limit.

  1. Don’t forget run-off

PI policies are written on a ‘claims made’ basis, meaning they only cover claims notified during the policy period. This is unlike Employers’ and Public Liability, which are written on a ‘claims occurring’ basis, where the insurer at the time of the incident provides cover, irrespective of when the claim is made.

As claims may arise years after work is completed, when you retire or cease trading you will need ‘run-off’ cover. This simply entails insurers adding a cut-off date to your current PI policy, so it only covers claims made while you were still trading.

The recommended length of run-off cover may vary depending on your profession and nature of work. Six years is usually considered a minimum, although certain professions may be exposed for 12 or even 15 years, particularly if any contracts were executed as deeds.

  1. Tailored solutions

Businesses’ PI needs can vary significantly, as can PI policy wordings, so sourcing cover that meets your specific needs may seem daunting. At Arlington, we take the time to understand your professional activities to ensure that the wording and limits are appropriate to your demands and needs.

Alternatively, if your business is relatively small and your needs are straightforward, you can buy PI insurance online quickly and simply via our website.