Professional Indemnity Insurance (PII)

Question 1

What is professional indemnity insurance?

Answer 1

• Covers the policyholder for financial loss in respect of advice or services provided, which occurs due to negligence, error, or omission in professional services.

Question 2

What does RICS say about professional indemnity insurance for firms?

Answer 2

• All firms must be covered by professional indemnity insurance.

Question 3

What is the purpose of having professional indemnity insurance?

Answer 3

• 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; and
• Ensures that the firm’s clients do not suffer financial loss, which the firm cannot meet.

Question 4

What is the difference between ‘any one claim’ and ‘aggregate’ policies?

Answer 4

• ‘Any one claim’ policy provides cover up to the full limit for each individual claim made in the period of insurance.
• ‘Aggregate’ policy provides cover up to the full limit for all claims made in the period of insurance.

Question 5

Tell me about Merrett Babb? (Court case in 2001)

Answer 5

• 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.

Question 6

What are the minimum limits of indemnity (for regulated firms)?

Answer 6

Firm’s turnover in the preceding year:
1. £100,000 or less - Minimum limit of indemnity £250,000;
2. £100,001 to £200,000 - Minimum limit of indemnity £500,000;
3. £200,001 and above - Minimum limit of indemnity £1,000,000.

Question 7

What is the maximum level of uninsured excess (for regulated firms)?

Answer 7

Limit of indemnity:

-Up to £500k is the greater of 2.5% of the sum insured, or £10,000.
- Over £500k is 2.5% of the sum insured.

Question 8

What measures do you take to avoid professional indemnity claims?

Answer 8

• Keep full and detailed records of meetings, conversations etc.
• Record recommendations and advice given.
• Do not provide advise outside my field of experience.
• Follow RICS guidance and professional statements.

Question 9

If you make a mistake, what would your insurance company expect you to do next?

Answer 9

• Notify the insurer asap.
• Comply with any conditions/procedures set out in policy.
• Advise the client of the error.
• Assess the level of mistake and take steps for correcting.

Question 10

Assuming you are MRICS, how would you deal with the following situation:
‘A friend asks you for help on a private house extension, they ask for technical advice, for free, outside of business hours. ‘

Answer 10

• My firms PII would not cover me for private advice; therefore, I would politely decline.
• I would also need to consider a potential conflict of interest situation working for a friend.
• I would suggest my friend contacts the firm I work for to discuss the commission.

Question 11

What is professional indemnity run off cover?

Answer 11

• A form of PII which covers historic liabilities of a business after it ceases to trade.

Question 12

How long should PII run off cover be in place?

Answer 12

• RICS expect cover to be maintained for a minimum period of 6 years from the cessation of the practice.