PE Insurance Flashcards
Who does Professional Indemnity Insurance (PII) protect?
- Firm
- Client
What does ‘losses occurring’ mean?
Where the insured event occurs during the policy period it will be covered
Are PII policies on a claims-made or losses occuring basis?
Claims made
What does claims-made mean?
Covering the insured against a claim first made during the policy period, not when the event prompting the claim occurred
When is the latest RICS PII guidance dated?
1 April 2021
What are the aims of PII?
- Ensure that if the firm faces a claim, it is protected from financial loss that it cannot meet from its own resources
- Protect the insured member or firm against the consequences of its liability to pay damages to third partise for breaches of professional duty that it commits through its professional activities
- Ensure that the firm’s clients do not suffer financial loss, which the firm cannot meet
What are RICS requirements for a firm’s PII?
- ‘Each and every’ claim or aggregate plus unlimited round the clock reinstatement basis
- RICS minimum policy wording or more comprehensive wording
- Minimum level of indemnity based on the firm’s turnover in the previous year (or estimated for a new firm)
What is the minimum requirement for RICS policy wording?
Full civil liability basis
What is correct for firm turnover v minimum limit of indemnity?
<£100,000 = £250,000
£100,001 - £200,000 = £500,000
> £200,001 = £1,000,000
Can firms hold a higher level of indemnity than the minimum requirements?
Yes
What is the level of indemnity v maximum uninsured excess?
Up to and including £500,000 = greater of 2.5% of the sum insured, or £10,000
What does maximum level of uninsured excess mean?
The part of each claim the firm must pay itself
What does it mean if the retroactive date of the policy is stated as ‘none’?
The policy is fully retroactive and all former work carried out by the firm will be covered
Do firm’s PII policies have to be underwritten by a RICS approved insurer?
Yes
Should PII cover be maintained for all past and present partners, directors, members and employees?
Why?
Yes
This protects your firm for the work that has been carried out in its name and also those who leave the firm
What typical exclusion is found in PII policies?
Fire safety
What is run-off cover?
To ensure that firms, members and their clients are not exposed to financial detriment in the period following a firm ceasing to trade
What is the run-offer cover requirement for consumer claims?
£1,000,000 in all for a period of six years from the expiry date of the policy in force at the time of cessation
How long is run-off cover required for non-consumer claims?
Minimum period of 6 years from the cessation of the practice, arranged and paid for on an annual basis
What is the run-off pool for?
Firms that are unable to obtain run-off from their incumbent insurer or the open market
What is the DPB?
Designated Professional Body
What is a DRP firm generally undertaking?
General insurance distribution work
What is the ARP? What is it for?
Assigned Risks Pool
For firms who are unable to obtain PII on the open market
How long can a claim be brought against a firm?
Up to 15 years
What Act defines the 15 year period which a claim can be brought against a firm?
Limitation Act 1980
What is contractors’ all-risk insurance?
Are all-risk policies typically taken out on a joint-names basis?
Cover for contract work undertaken and for the building works
Yes - with employer, contractor and subcontractors insured together
What is public liability insurance required for?
To protect against claims in the event a person or persons is injured or killed and to reinstate damage caused to third-party property
What Act requires employers to insure employees against bodily injury or disease arising out of and in the course of their employment?
Employers’ Liability (Compulsory Insurance) Act 1969
What is the risk of being under-insured?
The insured party will be exposed to the risk of uninsured losses
What is the risk of being over-insured?
Unneccessary capacity is being bought
Which JCT clauses deal with insurance?
Clause 6 of the JCT Contracts for Design and Build, Intermediate and Standard forms of building contract
Clause 5 within the Minor Works Contract
In a JCT Contract, where should insurance requirements and cover levels be stated?
Contract Particulars
JCT options?
- New Buildings - All Risk Insurance of the Works by the Contractor
- New Buildings - All Risk Insurance of the Works by the Employers
- Insurance by the Employer of Existing Structures and Works in or Extensions to them
What RICS guidance relates to reinstatement cost assessments?
Guidance Note Reinstatement cost assessment of buildings 3rd edition, February 2018
What database can be used to assess rebuild costs?
BCIS
What should reinstatement cost include?
> Total cost of completely rebuilding the property to be insured (net rebuilding cost)
> Allowance for demolition and debris removal
> Allowance for professional and statutory fees
Is reinstatement cost the same as Market Value?
No
What is representative of a typical insurance clause in a commercial lease?
The Landlord will insure the property, recovering the cost of the premium from the tenants
Does the landlord typically insure the tenants fixtures and fittings?
No
What happens if the building is damaged by an insured risk?
The landlord will be obliged to make a claim and spend the insurance money putting the property back into usable condition
Do the tenants still have to pay rent if a building is damaged by an insured risk?
The landlord will usually insure for a period of loss of rent, so if the damage is so severe that the tenants cannot use the property, the rent will be suspended for the time it takes the landlord to reinstate
What if reinstatement is impossible?
Most leases provide that if it impossible to reinstate the property within the period the landlord has insured for loss of rent, the landlord has the right to end the lease
What if damage is caused by a risk that is not insured?
Leases usually include provisions setting out how the landlord and tenants will share the cost if damage is caused by something that could not be insured
What are typical uninsured risks?
- Flooding
- Terrorism
What is an Act of God?
An event that is not the fault of any individual, such as a natural disaster
What is the role of a loss adjustor?
Someone who investigates and assesses claims on behalf of insurers
What protection does a ‘day one’ clause provide?
Against the effects of inflation during the period of insurance for a given percentage uplift figure
What is an endorsement?
Policy wording that extends or restricts the cover provided, or that requires compliance with stated conditions
Is a loss adjuster impartial or do they advocate the insurer’s position?
Impartial
What does uberrima fides mean?
Utmost good faith
What may a breach of disclosing material facts lead to?
The insurer may repudiate liability
What is IPT?
Insurance Premium Tax
What are the rates of IPT?
> Standard rate 12%
Higher rate 20%
