Claims are increasingly made against persons or firms engaged in professional duties or the provision of such services for alleged negligence, omission or error. Consequently insurance protection is sought by two groups:
- Those exposed to the risk of causing bodily injury (doctors, surgeons, dentists, pharmacists, etc)
- Those who may cause financial loss (architects, solicitors, IT professionals, etc)
The term Errors and Omissions (E & O) is sometimes used for policies issued to those who may not necessarily be qualified by a trade or recognized examination.
Some occupations (e.g. insurance brokers, solicitors, chartered surveyors) are required by law to have this cover and over time leading insurers have developed specialist policies particular to certain trades.
Legal Basis of Professional Indemnity
A professional person owes a duty of care to clients.
They will be liable for losses resulting from a breach of this duty or negligent misrepresentation. Following the introduction of the Misrepresentation Act 1967, courts also have the power to award damages in lieu of recession.
Where a business ceases trading or is sold, the outgoing owners still have a ‘run off’ liability and this type of cover can be purchased, usually at a reduced premium. In circumstances where new owners are accepting the run off liability, it is essential that their insurers are fully aware of the situation to maintain adequate cover.
Cover is on a claims made basis but where retrospective cover is required, this should be when the practice commenced to ensure there are no gaps in cover. The negligence must have been committed in the conduct of the business. Where partners or directors are carrying out professional services outside the business, indemnity should be sought for this activity.
Negligence by predecessors (inc. Employees) is included.
The policy indemnifies the insured against claims for damages and claimants’ costs for breach of professional duty due to negligence, error or omissions made against the insured during the period of insurance.
Cover can be arranged in two ways:
Any One Claim
Cover is limited per incident but you could find yourself subject to more than one claim in the period and this would be covered.
Cover is limited for any one claim but also during the period of insurance. In the event of multiple incidents and the limit being reached, cover will cease. Excess Layers in the event that the limit of indemnity is insufficient, excess layer policies can be purchased. In these circumstances it is essential that all insurers follow the wording of the primary policy to facilitate smooth handling of claims.
The limit of indemnity expressed normally applies to damages and the claimants costs. The Insured’s costs, provided that they have been incurred with the insurers consent, are in addition.
Territorial limits vary but the policies generally apply on a worldwide basis although Insurers may insist on any action being brought to the UK courts.
The policy contains familiar conditions such as claims notification etc but certain conditions call for a specific comment.
The Insurer retains the right to control all claims but undertakes not to exercise subrogation rights against employees unless the erring employee has been convicted for dishonest behaviour.
Policies provide a form of arbitration in the event of a dispute between the insured and the insurer as to whether the claim should be contested or disputed.
Discovery provisions vary but you will be required to notify insurers immediately of any claim, regardless of merit. Any subsequent development of a claim will then be deemed to have been within the period of insurance.
Records of gross fees should be maintained as a declaration will be required and the premium adjusted accordingly.
These may vary according to the profession but the principal ones have been listed below.
- Libel & Slander
- Dishonesty, fraudulent, criminal or malicious act or omission of employees
- Partners previous business
- Outgoing partners
- Extended cover/Run off Cover
- Cover for Documentation
- Breach of Warranty of Authority
- Fee recovery
- Libel & Slander
- Dishonesty etc of the insured or predecessors or employees of either
- Excess or deductible
- Bodily injury/Property Damage
- Circumstances not disclosed to the Insurer
Rating and Underwriting
The premiums are calculated on the fee income but variables such as profession, qualifications, experience, claims history etc all have an impact on rating. An annual declaration will be required in respect of fee income generated.