PII Flashcards
What is professional indemnity insurance?
Covers policy holder for the costs of legal action against them in respect to financial loss which occurs due to negligence, error, or omission in professional advice or services provided.
Has RICS published any information on PII requirements?
Yes - UK professional indemnity insurance requirements - Version 9 with effect from 1s April 2022.
What is the purpose of having professional indemnity insurance?
Ensures that if the firm faces a claim, it is protected from financial loss that it cannot meet from its own
resources.
Protects the insured member or firm against the consequences of its liability to pay damages to third parties for breaches of professional duty that it commits through its professional activities.
Ensures that the firm’s clients do not suffer financial loss, which the firm cannot meet.
What is the difference between ‘any one claim’ and ‘aggregate’ policies?
‘Any one claim’ and ‘aggregate’ refer to the basis of cover on a professional indemnity policy.
An ‘any one claim’ policy provides cover up to the full limit for each individual claim made in the period period of insurance.
of insurance, whereas an ‘aggregate’ policy provides cover up to the full limit for all claims made in the period of insurance.
Working example:
- Any one claim policy - If two £75,000 claims are made against a £100,000 any one claim policy, the insurer would cover the costs of both claims, as they are both under the £100,000 limit.
Aggregate policy - If two £75,000 claims are made against a £100,000 aggregate policy, the insurer would only pay up to the £100,000 limit. As the claims total £150,000, the remaining £50,000 would
need to be covered by other means.
What is a fully retroactive PII policy?
PIl policies work on a ‘claims made’ basis. This means the policy covers claims that are first made against the insured during the period of insurance regardless of when the negligent act occurred.
If the retroactive date of the policy is stated as ‘none then the policy is fully retroactive and all former work carried out by the firm will be covered.
What measures do you take to avoid professional indemnity insurance claims?
- Keep full and detailed records of meetings, conversations etc.
- Record recommendations and advice given.
- Use proper letters of engagement, appointment contracts and follow the scope of service.
- Avoid providing advice on specialisms outside my field of experience/knowledge.
- Follow RICS practice information and professional standards.
- Avoid excessive workloads
- Follow RICS Rules of Conduct.
- Follow company procedures and policy.
Tell me about Merrett v Babb? (Court case in 2001)
Babb completed a valuation as an employee of a company for a house purchased by Merrett.
The valuation was later found to be negligent.
The original company no longer existed and the professional indemnity policy had been cancelled.
The Court ruled Merrett could pursue the individual (Babb) for losses.
What are the minimum limits of indemnity (for regulated firms)?
Turnover | minimum limit of indemnity
£100k or less > £250k
£100k to £200k > £500k
£200k + > £1m
What is the maximum level of uninsured excess (for regulated firms)?
Firms turnover | max uninsured excess
£10m or less > greater of 2.5% of the sun insured or £10k
£10m + > No limit
If you make a mistake, what would your insurance company expect you to do next?
Notify them at the earliest opportunity.
Comply with any conditions and procedures set out in the insurance policy.
Advise the client of the error.
Assess the level of mistake and take steps for correcting.
Assuming you are MRICS, how would you deal with the following situation,
A friend asks for your
help on a house extension, they ask for technical advice, for free, outside business hours?
My firm’s professional indemnity insurance would not cover me for private advice; therefore, I so politely decline.
I would also need to consider a potential conflict of interest (giving professional advice to a friend
I would suggest my friend contacts the firm I work for in business hours to discuss a formal appointment.
What is professional indemnity insurance run-off cover?
‘Run-off is a form of professional indemnity insurance which covers the historic liabilities of a business after it ceases to trade (the policy covers legacy issues).
How long should run-off cover be in place?
Consumer claims - RICS expect min limit of £1m run-off cover to be maintained for a minimum period of six-years from the cessation d practice.
Non consumer - minimum period of 6 months after cessation
What are the requirements of PII?
- RICS min wording
- Any one claim or in the aggregate round the clock.
- RICS Listed insurer
- Minimum limit of indemnity
- Max limit of excess
- Fully retroactive
- Cover past and current employees
- Run off cover (£1m limit for consumer claim)
