Professional Indemnity Insurance Flashcards
Is it mandatory for a firm to have Professional Indemnity Insurance in place?
Yes, in accordance with rule 9 of the rules of conduct for firms
What is professional indemnity insurance?
PII provides cover for claims against the policy holder for:
- professional negligence
- breach of duty
- defamation
What must a firm do in accordance to rule 9?
Ensure all previous and current professional work is covered by adequate and appropriate PII cover which meets the standards approved by the regulatory board
What does PII cover?
- legal costs and expenses incurred in your defence
- damages incurred by your client as a result of negligence
What is the purpose of PII cover?
- to ensure that a firm is protected from financial loss that it could not meet from its own resources
- protect the insured (member or firm) against consequences of its liability
- to give clients the assurance that they will not suffer financial loss
RICS advises that PII should meet the following standards…
- cover for all employees past or present
- each and every claim basis (or aggregate plus unlimited round the clock reinstatement basis)
- comprehensive wording
- written on a full civil liability basis
- minimum level of indemnity based on the firms turnover in the previous year
- maximum uninsured excess based on limit of indemnity
- PII should be underwritten by a listed insurer found on the RICS website
What minimum limit of indemnity should a firm have?
Depends on firms turnover in the preceding year:
Turnover of £100k or less = £250k
Turnover of £100k - £200k = £500k
Turnover of £200k or more = £1m
What is meant by maximum uninsured excess?
A small percentage of the total sum insured which is payable by the insured at the time of the claim
What level of maximum uninsured excess does RICS recommend?
Based on limit of indemnity:
Up to and including £500k = the greater of 2.5% of the sum insured, or £10,000
Over £500k - 2.5% of the sum insured
What level PII does Mace have?
£20 million
What is a “Retroactive Date” on PII?
The date at which you held uninterrupted professional indemnity insurance cover (even if you changed insurer during this time)
Or the date from which your insurer has agreed to cover you
Any claims that arise from events prior to this date will not be covered by your insurance
What if you had PII in the past however your cover stopped, if you took out a new policy would your retroactive date from the initial PII cover still exist?
No, you would only be covered for work since the start of your new insurance policy
However, you can ask your broker to backdate the retroactive date however this would come at a premium and they would have to ensure there isnt an ulterior motive behind backdating it
What is a “Inception Date” on PII?
The inception date is the date from which your new policy begins; it’s how far back your existing policy goes
“Claims Made” VS “Claims Occurring” cover in PII?
Claims made = claim has to be reported during the policy period and not once the cover is over
Claims occurring = the member / firm is covered for any claims occurring during the period of cover, even if they are reported once the cover has ended
What is Run-Off cover?
Is a form of PII which covers historical liabilities of a business after it ceases to trade
RICS recommends fully retroactive cover for 6 years however this is dependent on the contracts the firm has signed and the limitation period on those contracts
How are PII levels calculated for new firms?
Based on the first year trading expected turnover
What does ‘Each and Every’ claim mean? What is the difference to ‘Aggregate’ cover?
Each and every claim
- Means the limit is payable in respect of each claim in the policy period
Aggregate cover
- The limit is only available once however many claims are made in the policy period
What does fully retroactive mean?
If the retroactive date is stated as ‘none’ then the policy is fully retroactive and all former work carried out by the firm will be covered
Could a broker impose a fire safety exclusion?
Yes, insurers may impose a fire safety exclusion, however from 1st May 2021 any exclusion will not apply to professional work carried out to buildings four storeys or under
Firms should seek guidance as to the impact of such exclusions in their consideration of the appropriateness and adequacy of their insurance on past work and future work
What is the run-off pool?
Firms that are unable to obtain run-off from the open market will be able to apply for coverage from the run-off pool provided by RICS
What are the updates to PII?
Updates to RICS Approved Minimum Policy Wording
- Fire safety cover
- Cyber cover
- Approved insurers
Why has there been an update to PII regarding fire safety cover?
Since 2020 insurers imposed a blanket fire safety exclusion on PII terms provided
Meant that surveying firms have been left uninsured for fire safety exposure on all aspects of their business
Under the new terms, insurers are not permitted to exclude fire safety claims on buildings four storeys or less without specific dispensation
Fire safety must be provided as a minimum on an aggregate, defence cost inclusive basis
Why has there been an update to PII regarding cyber cover?
Cyber cover = liability for a data breach involving sensitive information
There is a new regulatory requirement for insurers to clarify the cyber cover provided in PII policies. The changes do not restrict the cover provided in PII policies, but clarifies existing requirements on insurers from their regulator the Prudential Regulatory Authority.
What if a regulated firm cannot obtain PII on the open market?
The RICS has a market facility known as the Assigned Risk Pool (ARP)
The ARP is open to all UK RICS regulated firms that are unable to obtain PII, which meets the minimum requirements of the RICS, in the insurance market
What is the minimum level of run off cover?
Consumer claims: £1m
Non-consumer claims: adequate and appropriate cover
What is the premium for P I?
Typically between 1 - 5% of turnover dependent on what it is covering
What is the premium of P I based on?
Size of Firm Experience Nr of partners Type of projects Claims history
Why do RICS members need P I (if they own a business)?
To meet standards approved by the regulatory board
What is fully retroactive?
All former work carried out will be covered if retroactive date is “none” regardless of when negligent act occurred
What is adequate for run off consumer claims? (Type of claim basis)
Each and every claim
What should a PII policy contain?
1) Any one claim or aggregate plus unlimited round the clock reinstatement basis;
2) each and every claim basis
3) 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
8) Fully retroactive
9) Wording in line with RICS requirements
When should you let your PI insurer know about a complaint?
- This depends on your PII policy.
- PII policy normally obliged to advise insurer on any situation which may give rise to a claim.
What has the RICS changed regarding PII?
- minimum insurance requirements
- more flexibility on PII terms
- Amended the Assigned Risk Pool
- Fire Cover
- Cyber Cover
How long should Run Off Cover apply? Why?
6 years as recommended by the RICS.
Risk will reduce over time of 6 years
How to avoid P.I claims?
Refer to scope of services
Use RICS guidance
Keep record of all work done
QA procedures
How does insurers limit liability?
Caps on exposure arising from a claim
What case law is applicable to P.I.I and run off cover?
Merit vs Babb 2001
Mr Babb’s employer no longer traded
No Run Off Cover
Where can you find guidance on P.I?
P.I.I Requirements
Risk Liability and Insurance
What is a net contribution clause?
.
What were the updates to P I I?
Firms have been unable to obtain fire protection from 1st May 21
Insurers (without specific dispensation) are now permitted to: provide cover on fire safety claims four storeys or less on aggregate, defence cost basis
Cyber cover
When would notify your PI insurers on a complaint?
Anything that could result to a claim
Negligence
If it reaches external stage
