Professional Indemnity An Overview Birmingham Insurance Institute 28

Professional Indemnity – An Overview Birmingham Insurance Institute 28 April 2016 Laura Bee James Thompson Miranda Perks

1. Introduction o Who needs PI Cover? o What is PI cover? o Claims

Who needs PI cover? The PI Market – Specialist market – Cover to professionals for potential claims against them – Brokers: does the client provides professional services?

Who needs PI cover? Established Professions – Solicitors – Auditors – Accountants - Engineers - Architects - Surveyors

Emerging Professions o o o Information technology Advertising & Media Agronomists Recruitment Health & safety consultants Translators Immigration consultants Film risk assessors OFSTED inspectors Advertising agents Spiritual healers o o o Bailiffs and enforcement Debt management Arbitrators Bookkeepers Life coaches Lifting equipment consultants Mediators Interim Managers Cartographers Interior designers Accident investigators

PI Cover – a regulatory requirement? Some professionals are required to have cover by their regulating body: – – Solicitors - SRA Surveyors - RICS Architects - ARB Accountants – ICAEW The regulating body may have a facility to provide cover if the professional cannot get cover on the open market

Minimum Terms o o o Regulating bodies may prescribe the terms of the cover Ensures minimum level of cover Insurers’ policies but cannot be any less favourable Aim = To protect the professional and the public No minimum terms – IFAs & insurance brokers Avoidance

Key Minimum Terms o Some professional bodies (eg for Solicitors/Engineers) set more stringent MTC’s than others (eg Architects) o Minimum Indemnity Limits – – Solicitors - £ 3 m (LLPs) and £ 2 m (other firms) No limit for defence costs Architects - £ 250, 000 for each claim Engineers & Accountants – no minimum indemnity limits

2. What does a typical PI policy cover? o Typical Insuring Clause “The Insurer hereby agrees to indemnify the Insured against any civil liability to the extent that it arises from private legal practice in connection with the Firm’s practice provided that a Claim in respect of such liability is first made against an Insured during the Period of Insurance or during or after the Period of Insurance and arising from a Circumstance first notified to Insurers during the Period of Insurance”

What is a Claim for Civil Liability? o Allegations that a professional has done something wrong in the provision of their services; and o A demand for compensation. o What type of claims?

What will the policy cover? o A PI policy covers claims which are first made against the professional during the period of insurance. The policy will also cover a later claim if the circumstances that gave rise to it are notified in the policy period. o Conversely, PI policies will normally exclude liability for any claim or circumstance which was notified to an earlier insurer or which professional knew about before entering into the policy. This can lead to problems.

Claims o Conflicting Interests? – Insurers want best commercial outcome – The Insured is concerned about professional reputation (and the excess/claims record): – Insurers usually control claim but want insured ‘on board”. Insured/Broker remain closely involved – The solicitor has to protect insured/insurers’ interests

Conflicting Interests o What happens if there is a dispute between Insurers and the Insured as to how a claim should be handled/resolved? – – Control Clause QC Clause

3. Claims – What happens? Case study Foamy Ltd (the Claimant) is a manufacturer of rubber foam products operating from its own factory. Insurance for the factory was placed by Unlucky Ltd, an insurance broker (the Insured). There is a fire at the Claimant’s factory causing significant damage. The Claimant’s insurer (Evergreen) declines cover for non-disclosure and/or misrepresentation as to the level of security at the Claimant’s premises (the Claimant has failed to tell underwriters that the intruder alarm was not being set to cover all parts of the premises). The Claimant claims that the Insured failed to advise them about the alarm warranty. A total sum of £ 1, 000 is claimed for buildings, contents and business interruption.