Liability Insurance Australia :: Articles
SHARE

Share this article!

A Guide to Choosing Professional Indemnity Insurance and Understanding the Policy Terms

A Guide to Choosing Professional Indemnity Insurance and Understanding the Policy Terms

Professional Indemnity Insurance can be a minefield.
The policy terms and conditions can vary immensely from insurer to insurer.
This article will help you to understand the jargon and make an informed decision when choosing professional indemnity insurance for your business.

Professional Indemnity Insurance (PI) can be a complex area. Policy wordings can vary quite fundamentally from Insurer to Insurer. Different professions have different needs and as a result specialist wordings exist for some industries such as IT, marketing, media, construction, surveying, architects, etc.

Some professional bodies require their members' insurances to be written on an approved wording, Accountants and Solicitors PI being two examples.

Examples of the professional indemnity insurance terms that you are likely to encounter when considering this cover for your business include:

Claims Made

Professional Indemnity Insurance policies are written on a claims made basis. This means that it is the insurance policy that is in place on the date a claim is made against you, rather than at the time you carried out the work, that would respond to a claim

Retroactive Date

As mentioned above as your professional indemnity insurance policy is written on a claims made basis, it is your existing insurance company who is liable for claims made today for work carried out in the past. The retroactive date noted on your policy fixes the date from which they are potentially liable. A claim made against you for work carried out prior to the retroactive date will not be covered.

Your PI policy will show a retroactive date of either:

  • Inception - namely the date from which you first placed your insurance with them
  • A specific date eg 01/01/2000 - this is usually the date that you took out your first professional indemnity insurance policy
  • None - this usually applies if your business has been insured uninterrupted for many years.

Negligence or Civil Liability?

Some policies will only indemnify you in respect of a claim brought against you for a negligent act. Others are written on a much wider civil liability basis, which would cover you in respect of claims arising from

  • Breach of professional duty;
  • Dishonesty of employees;
  • Libel or slander;
  • Unintentional breach of confidentiality;
  • Unintentional infringement of intellectual property rights. (Some insurers restrict this to unintentional infringement of copyright only)
  • Loss of or damage to documents.

The Limit of Indemnity

The limit of indemnity is the maximum that an insurance company will pay out. A classic example of when professional indemnity insurance terms can make it difficult to compare quotations, you will need to know whether the limit of indemnity applies "in the aggregate" or to "any one claim".

  • "in the aggregate" this means that the limit of indemnity is the maximum your insurance company will pay during the entire period of insurance, regardless of how many claims you make. For example if your limit of indemnity is £1,000,000 in the aggregate and during the period of insurance you are unfortunate enough to have three claims successfully made against your business each for £500,000, you will find yourself having to fund a £500,000 claim yourself

  • "any one claim" the limit of indemnity is the maximum your insurance company will pay for any one claim. In the example above as each claim is less than the £1,000,000 limit of indemnity they will pay each claim in the full (less the policy excess see below)

The choice of limit of indemnity for your business' professional indemnity insurance is muddied further by the issue of defence costs, see below.

Including Defence Costs or Defence Costs in Addition

How your insurance company treats the issue of defence costs should be an important factor when assessing your limit of indemnity. Some insurance companies state that their limit of indemnity is £x, defence costs in addition. This means that the limit of indemnity applies to the awards element of a claim against you and that legal costs incurred will be paid by your insurance company in addition to the limit. Other insurers will include defence costs within the total limit of indemnity meaning that a low limit of indemnity could get quite quickly eaten up by legal costs.

The Excess

The treatment of the excess can vary from policy to policy too. Some Insurers apply it to the whole claim including the defence costs. Others only apply it to awards meaning that you do not need to fund the initial defence costs yourself.

Professional Indemnity Insurance can be a complicated form of Business Insurance. I hope this article has helped you to understand some of the terms and jargon that you are likely to encounter and will help you to interpret the differences in cover when comparing quotations.

Published:Thursday, 23rd Jan 2014
Author: 330

Share this article:


Business Insurance Articles

The Cost of Safety: How Much Public Liability Insurance Does Your Australian Business Need? The Cost of Safety: How Much Public Liability Insurance Does Your Australian Business Need?
As a business operating in Australia, understanding the ins and outs of public liability insurance is not just recommended, it's essential. This type of insurance serves as a safeguard, protecting your business against the financial repercussions of lawsuits and claims arising from third-party injuries or property damage due to your business operations. In a world where one unintended mishap can lead to costly legal battles, public liability insurance stands as your first line of defense. - read more
The Importance of Public Liability Insurance in the Australian Labour Hire Industry The Importance of Public Liability Insurance in the Australian Labour Hire Industry
The Australian labour hire industry has seen a significant rise in recent years, and with this growth, comes new and unique risks that companies in this industry must be prepared to navigate. One such risk is the potential for accidents or damages to occur in the workplace, which is where public liability insurance comes in. This article will explore the definition of public liability insurance and why it is so important for labour hire companies in Australia. - read more
Proven Strategies for Slashing Your Business Liability Insurance Costs Proven Strategies for Slashing Your Business Liability Insurance Costs
Welcome to our comprehensive guide on public liability insurance, an essential safeguard for businesses across Australia. Navigating the complexities of liability insurance can be a daunting task for many business owners, but it’s a critical component of your business protection plan. If incidents such as accidents or property damage occur, liability insurance is the barrier that stands between your business and financial calamity. - read more
Reducing Your Risks: Public Liability Coverage Tips for Trade Professionals Reducing Your Risks: Public Liability Coverage Tips for Trade Professionals
For tradesmen and trade professionals, venturing into the world of business comes with its set of challenges and risks. Among the myriad of precautions to consider, one critical safeguard stands out for its ability to protect both the tradesperson and their clients: Public Liability Insurance. This form of coverage is not just a safety net; it is a cornerstone of a responsible business practice within the trade industry. - read more
Understanding Product Liability Insurance in Australia: A Business Owner's Guide Understanding Product Liability Insurance in Australia: A Business Owner's Guide
As a business owner in Australia, navigating the complexities of protecting your company is crucial, with product liability insurance being an essential aspect to consider. This type of insurance is designed to shield businesses from financial losses that may arise if a product they manufacture, supply, or sell causes harm to a consumer or damages property. With the marketplace being as litigious as it is, understanding and maintaining appropriate coverage is not just advisable—it's a necessity for the longevity and stability of your enterprise. - read more

Insurance News

Insurers Bet Big on AI for Streamlining Claim Resolutions Insurers Bet Big on AI for Streamlining Claim Resolutions
28 Mar 2024: .Paige Estritori

Australia's insurance sector is witnessing a transformative embrace of artificial intelligence (AI), with a sweeping 90% leaning on, or on the cusp of adopting, chatbots and advanced AI to enhance claim handling, as noted in Gallagher Bassett's yearly analysis. This heightened integration reflects the sector's aim to bolster operational speed and efficacy, with a remarkable 98% of insurers predicting immense benefits from such advancements. - read more
Spike in Weather-Related Insurance Claims During Summer Revealed Spike in Weather-Related Insurance Claims During Summer Revealed
27 Mar 2024: .Paige Estritori

Over the recent summer period, NRMA Insurance reported an influx of claims linked to severe weather, with a record not seen since the autumnal months of 2022. An overwhelming number of these, about 85%, have been ascribed to weather disturbances such as storms and hail, per the updated Wild Weather Tracker statistics. - read more
Federal Court Upholds Insurer's Policy Update Clause Federal Court Upholds Insurer's Policy Update Clause
26 Mar 2024: .Paige Estritori

The Federal Court has provided a green light to Auto & General’s home and contents insurance policy terms, confirming the necessity for policyholders to inform the insurer about significant changes affecting their coverage. The company emerged victorious in a legal scrutiny instigated by regulatory body ASIC over the disputed clauses. - read more
Survey Reveals Time Crunch for Brokers Facing Compliance Hurdles Survey Reveals Time Crunch for Brokers Facing Compliance Hurdles
25 Mar 2024: .Paige Estritori

Steeped in administrative duties, brokers are dedicating over three hours daily to data processing tasks, finds a survey issued by an insurance software company. Further intensifying their plight, nearly one-fifth have reported growing complications and time expenditure in compliance adherence, underlining a pressing industry conundrum. - read more
Revolutionizing Carbon Trading with Novel Insurance Offering Revolutionizing Carbon Trading with Novel Insurance Offering
24 Mar 2024: .Paige Estritori

In an innovative move within the environmental finance sector, CFC has introduced a cutting-edge insurance product specifically targeting the burgeoning carbon credit market. This pioneering Carbon Delivery Insurance is designed to mitigate the risks associated with non-delivery of carbon credits, reinforcing market confidence and integrity. - read more

Start Here
Your free liability insurance quote comparison starts here!

Cover Amount:
Postcode:
All public liability quotes are supplied to you free and without any obligation. We respect your privacy.

Knowledgebase
Trauma Insurance:
An insurance that pays a lump-sum amount on the diagnosis of one of several critical illnesses or events