Insurance and Keeping Your Cover Current
Insuring your ability to practice your profession
No professional relishes the thought of making a mistake or being accused of being negligent in the execution of their professional duties. In fact, you may not even have made a mistake for a claim of negligence to be brought against you. However you’ll still need to defend any such claims to resolution, which can be a costly affair, both in time and financially. It is when things go awry and a claim is lodged that the real value of Professional Indemnity (PI) insurance and professional advice are truly appreciated.
Professional Indemnity (PI) insurance is designed to protect professionals such as architects, engineers, attorneys, brokers, doctors, estate agents – essentially any professional individual or practice – who takes a fee for providing a service. PI insurance provides the insured party with indemnity in respect of legal liability arising out of the practice of their profession. Indemnity cover will include the professional’s own legal costs, as well as any compensation to the claimant and/or legal costs that are up to the limit of indemnity of the policy, providing all parties with peace of mind and financial protection in the event of a claim.
“PI cover is a non-negotiable for any professional operating in an increasingly litigious society and business environment. However, many professionals, particularly independent consultants, operate without cover, exposing themselves to financial ruin in the event of a mistake that results in a claim. PI insurance is designed not only for traditional professionals who provide advice or a service to their customers, but anyone who holds themselves out to be an expert in a particular field and whose expertise and advice the public might rely on, for example an IT expert,” explains Allistar Harris, from Professional Risks at Aon South Africa.
“Even if a professional has acted in full accordance with the law and professional standards, if a claim is lodged against them, they will need to defend their position and actions in a legal process. The defence costs can be massive and drawn out over a number of years. During this time, a professional (entity or sole proprietor) without PI protection could be liable for the legal costs, facing potential financial and reputational ruin. If your PI cover lapses as renewal was not done on time, it will cause a break in coverage, which can be equally as damaging as not having any cover at all,” Allistar warns.
The Importance of maintaining or renewing your Professional Indemnity policy
If you are a professional who has acquired a Professional Indemnity policy, it is important to note that the policy is issued on a ‘claims made’ basis. Simply put, this means that the policy that is in force at the time that a claim is made against a professional will respond to the claim, and not the policy that was in force at the time the work was done. Therefore, should the policy be lapsed or not renewed there will be no cover in force to respond to any claims, making it crucial to renew your PI policy annually as the policy does not auto-renew.
Another key risk of not renewing your PI policy on time means that you lose your retroactive date that you or your firm enjoyed on the policy. “A retroactive date is normally fixed as being the date on which the cover was first taken and would remain unaltered for the purposes of subsequent renewals. This date is important because there will be no coverage for claims arising out of work performed prior to this date. You do have an option to take additional retroactive cover at the time of the policy’s inception, subject to certain conditions and premium loadings,” Allistar explains.
“If you are in a situation where your PI policy has lapsed, you may be able to purchase a new business policy and you may be able to purchase retroactive cover within certain limits. It is important to note that the policy’s inception date will now be the current date, offering no cover for work done or projects executed prior to the new retroactive date,” Allistar warns.
Most renewal reminders are sent three months prior to the actual renewal, allowing the client and broker enough time to renegotiate terms with an insurer or to find capacity elsewhere if needed. Professional indemnity policies usually take time to renew, so leaving renewals to the last minute could result in the policy not being renewed in time, causing a gap in cover or the policy lapsing in totality.
Risk volatility is omnipresent, especially in the daily dealings of professionals. “A broker with sector specific experience is invaluable in providing the insights that you need to be better informed about the risks that you are faced with in your professional career. Armed with a clear view, you will be able to make better decisions to remain risk resilient and ahead of the curve,” Allistar concludes.