Any professional who offers advice or a delivers a service in exchange for a fee should have adequate Professional Indemnity (PI) insurance in place to provide them with financial protection should they unintentionally cause a loss to another party during the performance of their professional duties.
This is according to Junior Maphalala, Underwriter: Professional Indemnity at SHA Specialist Underwriters, who explains that a PI Policy will cover the policyholder in an instance where they are liable for losses incurred by a third party due to the provision of negligent services or advice by the professional. “However, this is provided that the negligent act, error or omission occurred during the course and scope of the insured’s professional duties and subject to the terms, conditions and exclusions as stipulated in the PI insurance policy.”
He also states that it should never be taken for granted that negligence, errors or omissions will always be covered under a PI policy. “Each incident will be assessed on its own merits to determine whether the act was an insurable event under the policy and subsequent policy response.”
Maphalala therefore provides the following five considerations for professionals to be aware of when purchasing a PI policy;
- When it comes to completing the proposal form, it is in the best interest of the person or company purchasing the PI policy to disclose as much information as possible to their broker or insurer and to provide any additional material information about the business. This will help the insurers and/or underwriters to better understand the risks associated to that specific business and will allow them to properly assess risk and provide cover accordingly.
- When deciding on what Limit of Indemnity is best suitable for the policyholder, it is important to remember that the limits on most PI policies include defence costs (fees and all other expenses that are incurred in order to assist with the investigation or settlement of a claim) as well as representation costs in an inquest, an inquiry or any other proceedings in respect of matters which have a direct relevance to the claim. Legal fees can quickly mount up, possibly eroding the remaining cover for damages or settlements. Given the fact that the premiums are commonly on a sliding scale (the premium doesn’t double every time the limit doubles), it’s worthwhile to get several options of limits before making a decision.
It is also important to remember that even though the insured may have “Limitation of Liability” agreements in their contracts, these agreements are only applicable to losses suffered by those who they have the agreement with. Should any third party who was not part of said agreement suffer any loss as a result of the insured’s negligence during the performance of their professional services for another party, this “Limitation of Liability” will not apply. For this reason the decision on what limit to purchase should not rest purely on this limitation.
The rule of thumb in respect of choosing a limit is to buy as much as one can afford as it is very difficult to quantify PI exposure precisely, due to the nature of the risk and cover provided.
- The PI policy is a “Claims Made Policy” which means that the policy must be in force at the time an incident is reported for cover to be in place, in respect of losses which occurred for work performed on or after the retroactive date stated on the policy. The retroactive date is the date on which the Insured first incepted cover and any work performed on or after that date will be covered in terms of a Claims Made policy, provided that there has been no gap in cover. Any error or omission that occurred prior to the inception (or retroactive date if a replacement policy is being issued) of the policy will not be covered. Failing to renew a PI policy on time will result in a gap in cover and any losses that occurred prior to the renewal could very well be rejected by the insurer.
- It is imperative that the policyholder is aware that they should under no circumstance admit, offer, promise or settle any claims without prior written consent from their insurer. Legal practitioners should also not be appointed to investigate or defend any matters before the consent of the insurer has been obtained.
- While some PI policies provide cover for territories outside South Africa, it is vital that the policyholder understands that the interpretation and enforcement of terms, conditions and exclusions stipulated in the insurance policy will be in accordance with the law of the Republic of South Africa.
“It is advisable that any person who offers professional advice as part of their daily job has appropriate PI insurance in place, irrespective of the size of the business. And above all – make sure you consult a broker who can guide you through the cover”, concludes Maphalala.