Miscellaneous Professional Indemnity Steve Abrahams Session Structure What

Miscellaneous Professional Indemnity • Steve Abrahams

Session Structure • • What is Miscellaneous PI? Who writes it and why? What are the problems? Look at some major professions – Background – Legal / Claims aspects – Underwriting factors.

What is Miscellaneous PI? • Non-Traditional Professions • Advertising Agents to Zoological consultants • No time to cover them all today.

Who and Why? • Most PI markets now write • Favourite area to expand into • Some specialise: – e. g. media, computer consultants. • Increase income • Avoid loss making traditional professions.

Who and Why? • Spread portfolio risk • Room for innovation – not tied to compulsory wordings • Originally perceived as low risk • Was considered an untapped market.

Problems writing it • Some professions are small – Insufficient data to set rates – Each profession can’t pay it’s own claims • Competition is increasing – Everyone looking for the same business.

Problems writing it • No regulatory framework – Qualifications not compulsory – Varied procedures between firms means Risk Management all over the place • Litigation on the increase – Not so easy to make a profit.

Specific Professions • Advertising Agents • Computer Consultants • Brief look at: – Actuaries – Auctioneers – Travel Agents.

Advertising Agents • Background – Plan, create and produce – Big business, large companies – Much of the media relies on advertising for revenue – No qualifications required to practice.

Advertising Agents • Legal / Claims aspects – Subject to many statutes • Trade Descriptions Act • Trade Marks Act • Control of Misleading Advertising Regulations • Consumer Protection Act.

Advertising Agents • Legal / Claims aspects – Errors in brochures requiring reprint: £ 50, 000 – Artwork the wrong colour: £ 40, 000 – Copyright not obtained for music: £ 300, 000 – Wrong addresses in mail-shot: £ 150, 000 – Games and Competitions in general!!

Advertising Agents • Legal / Claims aspects – Sources of claims • • Brochures: Copyright: Games/comps: Design etc: 45% (35% of payments) 15% (25% of payments) 3% (15% of payments) 10% (3% of payments).

Advertising Agents • Underwriting factors – Specialist wordings • Plagiarism, infringement of property/contract rights, copyright • Libel & Slander, defamation • “In House” cover.

Advertising Agents • Underwriting factors – Specialist wordings - “In house” Cover • Cover for rectifying errors before client aware • No need to go back to client and admit errors • Percentage of R&SA claims from in-house cover: – – Brochures: 70% Games etc: 90% TV work: 45% Graphic Design: 25%

Advertising Agents • Underwriting factors – Risk Selection • • Ensure they are well managed Check contract conditions not too onerous Who are their clients - how demanding? Are they fully aware of the cover and the need to involve insurers from start?

Computer Consultants • Background – Major industry - 20, 000 firms in UK – From the likes of Logica to one man bands – No compulsory qualification • Anyone can claim expertise • British Computer Society (FBCS/MBCS)

Computer Consultants • Background – Hardware / Software distinction – Range from off the shelf suppliers to turnkey projects

Computer Consultants • Legal / Claims aspects – Myriad of cases – Claims examples • Incorrect financial data supplied to newspaper • Stock control system that didn’t: £ 150, 000 • Loan repayment calculation in error - losses to bank: £ 50, 000 • Distorted mailing list - £ 100, 000

Computer Consultants • Legal / Claims aspects – Where do claims arise from? • • Copyright: 5% Engineering: 14% Data Processing: 7% Other software: 34% (1% of payments) (30% of payments) (53% of payments)

Computer Consultants • Underwriting factors – Most claims arise from “perception” differences or misunderstandings: • • • no written contract failing to meet client expectations lack of documentation changes not signed off changes requiring additional fees exceeding the budget agreed

Computer Consultants • Underwriting factors – Specialist wordings and schemes • • Need expertise to underwrite successfully Wordings need to deal with contracts Breach of copyright, trade mark, patent etc. “In house” losses

Actuaries and statisticians • Background – Institute of Actuaries, Faculty of Actuaries • • • 4, 300 Fellows 50% insurance companies. 40% consultants Rigorous qualification route Employed actuaries have to be identified as the source of advice

Actuaries and statisticians • Legal / Claims aspects – NRG v Ernst & Young and Bacon & Woodrow (1995) • • Acquisition of NRG Victory claims dismissed after 10 months £ 400 m originally claimed PI market left with heavy costs payment

Actuaries and statisticians • Legal / Claims aspects – Negligence in investment and actuarial advice to pension fund - £ 1 m – Negligent tax advice - £ 300, 000· – Errors in calculations of funds available. – Incorrect setting of reserves – Pension Scheme mismanagement.

Actuaries and statisticians • Underwriting factors – Institute requires a civil liability wording – Usually issued on “general wordings” – Involved in high risk business – Substantial exposures for PI insurers – Market schemes – Underwriters wary as have been large notifications.

Auctioneers • Background – Sales of chattels (fine art furniture), land, buildings, bloodstock, plant & machinery – No compulsory qualification, but most are RICS – Many are part of surveying firms.

Auctioneers • Legal / Claims aspects – Many legal cases (see the ASG) • • Obtain best price for client Ensure he obtains a binding contract Establish clear identity of buyer No uncertainty in final bid price.

Auctioneers • Legal / Claims aspects – Case law: • Has Liability as bailee of goods • Duty not to misdescribe • Can be liable for negligent research

Auctioneers • Legal / Claims aspects – Claims circumstances • Improper appraisal & valuation of the item. • Breach of contract, exceeding authority or misrepresentation. • Failure to note a reserve bid. • Failure to administer the bidding process properly. • Failure to check sellers right to title before selling (conversion).

Auctioneers • Underwriting factors – Type of goods auctioned – Fine art and bloodstock higher risk – Look at latest catalogue

Education • Background – Expanding demand for PI • Schools to universities • Provision of education, research, advice • Increased profile

Education • Legal / Claims aspects – Increase in cases brought • Incorrect courses • Withdrawal from exams • Failure to notice dyslexia etc

Education • Legal / Claims aspects – Claims Examples • • Loss of professors old papers - £ 80, 000 Defamation of colleague Cancelled course that job had been left for Medical test - failed to diagnose Down’s syndrome after mixing up sample

Education • Underwriting factors – General wording with a few extensions • Risk Factors – Wide variation between risks: • from simple education to research • need to fully understand what they do

Travel Agents/Tour Operators • Background – Started with Thomas Cook in 1802 – ABTA regulates – From small high street to major tour operators

Travel Agents/Tour Operators • Legal / Claims aspects – Package Travel, Package Holidays and Package Tours Regulations 1992 • Main liability falls on Tour operator, – Strict liability for performance of contract – Information must not be misleading – Travel agent can be strictly liable for death, injury and financial loss in absence of tour operator

Travel Agents/Tour Operators • Legal / Claims aspects – Endless list of claims examples! • From no vegetarian menu to serious injury claims • Hotels not ready for large party - £ 50, 000 • Conference bookings mixed up - £ 250, 000

Travel Agents/Tour Operators • Underwriting factors – Usually write with Public liability – Aim to pick up financial loss only – High risk: • Group bookings • Adventure holidays • Overseas clients.

Many more professions • See Advanced Study Group paper for: – Management Consultants – Financial Consultants – Loss Adjusters

Summary • Understand the business of the Insured • Be aware of the hidden dangers • Is the cover appropriate? • Measure the quality of the risk

Miscellaneous Professional Indemnity • Questions