Ethics, Rules and Conduct - Insurance

Question 1

What is PII insurance and what is its purpose?

Answer 1

Professional Indemnity Insurance (PII):
- Protects firms against losses resulting from professional negligence, errors and/or omissions which cause financial loss to a third party
- Ensures a firm’s clients do not suffer financial loss which the firm cannot meet

Question 2

What should a PII policy contain?

Answer 2

1. Must be on a claims made basis
2. Must be on a each and every claim basis
3. Policy wording is written on a full civil liability basis
4. Underwritten by a listed insurer
5. Covers past and present employees
6. Run-off cover
7. Minimum level of indemnity required by the RICS

Question 3

Explain the term ‘claims made basis’.

Answer 3

The policy at the time the claim is made will respond, not the policy in place at the time of the negligence

Question 4

Explain the term ‘each and every claim basis’

Answer 4

The limit of indemnity covers each claim individually (instead of a accumulatively for that year, which is referred to as ‘in the aggregate’)

Question 5

What is ‘Run-off cover’?

Answer 5

Run-off cover ensures firms, members and customers are not exposed to financial detriment in the period following a firm ceasing to trade or a member’s retirement

Question 6

How would you determine what is sufficient in terms of PII Run-off cover?

Answer 6

Should be for a minimum of 6 or 12 years, depending on how the contract was executed, however negligence claims can be made up to 15 years after work was undertaken - advice from an insurance broker should be sought as to whether to maintain for the full 15 years

Question 7

What are the minimum levels of PII based on?

Answer 7

Based on the firm’s turnover in the previous year (or estimated for a new firm)

Question 8

What are the minimum levels of PII required?

Answer 8

1. £100,000 or less turnover = min. £250,000 indemnity
2. £100,001 to £200,000 turnover = min. £500,000 indemnity
3. £200,001 and above turnover = min. £1,000,000 indemnity

Question 9

What is generally excluded from PII cover?

Answer 9

1. Material damage
2. Theft
3. Personal injury
4. Damage to third party property
5. Work carried out prior to the inception of the policy
6. Insured v insured claims (i.e. a company suing an employee for professional
   negligence)
7. Insolvency