Insurance can be a blur of acronyms and phrases that can be confusing at times. To help ease the process of taking out or renewing a policy, we've put together a quick guide to some of the key terms and phrases you may come across when discussing your Professional Indemnity Insurance (PII).
Claims Made
PII is written on a claims made basis, meaning that it is the policy in place on the date that the claim is made against you that will respond, as opposed to the policy in force at the date of the negligent act, error or omission itself. It is important to remember that if there is no live policy in place then no cover is in force.
Limit of Indemnity
This is the maximum amount that your insurer(s) will pay out during the policy period. This will be stated on your policy schedule. The limit of indemnity can be on the following basis;
- Any one claim
The limit of indemnity is available for any one claim with the number of claims being unlimited. The liability of insurers is to the maximum limit stated in the schedule for any individual claim but there is no overall limit on the number of claims.
- Any one claim and in the aggregate
The limit of indemnity is the maximum available in any one policy period irrespective of how many claims are made. The limit will not be reinstated once eroded.
- Any one claim and in the aggregate plus unlimited round the clock reinstatements
The limit of indemnity is still in the aggregate but once the full limit has been eroded, the limit of indemnity will be reinstated without limit to the number of reinstatements during the policy period. This basis is used for more complex programmes where there are multiple layers. Unlimited round the clock reinstatements operate similarly to any one claim with the key difference being from insurers perspective in terms of how and when excess layers are triggered.
Retroactive date
This is the date from which your work is covered. Any act, error or omission arising from professional services provided prior to the retroactive date would not be covered. If the retroactive date is 'none' or 'unlimited' then cover applies to all previous work undertaken.
Excess
The self-insured excess is the amount that you will pay towards each claim. The basis of the excess will be either;
- Excluding defence costs
This means that the excess does not apply to the costs and expenses incurred in defending a claim and ultimately, you would only be liable to pay the excess in the event of a successful claim against you i.e. if your insurer is required to pay damages or compensation.
- Including defence costs
This means that the excess applies to the costs and expenses incurred in defending a claim, even where you have not been negligent.
Run-off cover
A policy would be put into run-off where the insured business is no longer trading but still requires cover for past work undertaken. This is due to the claims made basis of professional indemnity insurance. For some professions, run-off is a mandatory requirement of governing bodies, such as the RIBA for architects and RICS for Surveyors.
Vicarious Liability
This is where you are held financially responsible for the actions of another party. In PII, this would usually be relevant where you are engaging a sub-consultant or sub-contractor and you are ultimately taking responsibility for their actions.
Sub-contractors / Sub-consultants PI warranty
There may be a stipulation under a PII policy that any sub-contractors/sub-consultants engaged by you must hold and maintain their own PII policy to a certain limit of indemnity. There may be requirements on you to make annual checks that the insurance is being maintained. This clause can be condition precedent to insurers liability, meaning that if you do not adhere to the condition then insurers may turn down the related claim. The wording of this clause can vary so please do refer to your policy wording specifically.
Subjectivity
You may find a subjectivity attaching to your professional indemnity insurance quotation. This will usually be a request by the underwriter for further information. The underwriter may alter the terms and conditions being offered depending on the answers provided so it is important to resolve these matters early to confirm quotations in good time.
No Claims Declaration (NCD)
A no claims declaration form will often be a subjectivity stipulated by underwriters attaching to their quotation, often referred to as an NCD. This may also be referred to as a no material changes declaration (NMCD). Ultimately, insurers are looking for confirmation that there are no claims or circumstances that may give rise to a claim ahead of incepting the policy. Insurers are also looking to understand there has been no material changes in circumstances that they have not been made aware of. If there has been any claims, notifications or change in circumstances then these will need to be flagged with insurers and it may impact the quotations being offered.