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What is Professional Indemnity Insurance?
Professional Indemnity Insurance provides cover if you become legally liable to a member of the public (usually a client) following an error or omission in the professional advice, design, certification or service you have provided them with and as a result they have suffered a financial loss. It also covers any legal costs incurred in defending you in the event of a claim /action being taken against you. This insurance is commonly known as Professional Liability Insurance or PI cover.
Common terminology referred to within this insurance cover
- In the aggregate basis
The level of cover you choose applies to the sum of all accumulated claims made during one policy period. Legal defence costs of a claim are included within the level of cover chosen.
- Any one claim basis (Sometimes called Each and Every Claim)
The level / limit of cover applies to each claim, regardless of how many claims you make in the period of insurance. Usually the legal defence costs are paid in addition to this limit.
- Applicable Courts (also known as jurisdiction)
For you to be covered by the policy, a claim against you must be brought in the courts of – or be subject to the laws of – a specific country or region. This is normally Republic of Ireland but it can be worldwide excluding USA and Canada or occasionally just worldwide.
- Defence Costs (also known as legal costs)
The costs of defending your claim in a court of law. These will be included in the overall level of cover or paid in addition depending on whether you have an “aggregate” or an “any one claim” basis policy.
- Negligence The failure of that professional to exercise the degree of skill and care expected of a competent practitioner in the same profession. The cover indemnifies the policyholder against loss/circumstances incurred only as a result of their negligent act, error or omission in carrying out the policyholder’s business.
- Breach of Duty A typical PI policy will provide indemnity to the insured against loss arising from any claim or claims for breach of duty which may be made and reported to the insurers during the policy period by reason of any neglect, error or omissions committed in the conduct of the insureds professional business.
- Civil Liability An alternative broader form of cover which provides indemnity for any civil liability. The policy covers as standard such areas as breach of contract, libel and slander amongst others.
- A Professional is someone who sets themselves apart from everyone because they hold themselves out to be a specialist. A person who regards themselves as a specialist in a particular field, owes a greater duty of care than does the ordinary person.
- Excess (also known as the Deductible or Retention) The amount you pay towards each claim. In the case of professional indemnity insurance, it’s usual for the excess to be paid only when you are deemed negligent.
- Geographical Limits
For a claim to be covered by the policy, your business must operate within certain countries. These are usually defined as Ireland, EU or worldwide and whichever applies to you will be stated on your policy schedule.
- Level of Cover
Sometimes called ‘limit of indemnity’. The maximum sum that your insurer will pay in the event of any one claim, or the maximum sum paid for all accumulated claims depending on how the limit is stated i.e. either ‘any one claim’ or ‘in the aggregate’ basis.
- Claims made basis With Professional Indemnity insurance, the relevant cover is the cover that is in place on the date the claim or action is first made or the insured first becomes aware of a circumstance likely to give rise to a claim and notifies his insurer and not the date of negligence or the date the work was carried out.
- Retroactive Date The date from which your work will be covered, regardless of the inception date of the policy. If a claim arises from work carried out prior to this date then it is not covered.
- Fully Retroactive Date The retroactive date of your policy should be stated as ‘none’. If the retroactive date of the policy is stated as “none” then all former work carried out by you or your Firm since establishment date is covered.
- Run-off cover Insurance for a business which has ceased trading but wishes to maintain cover for past work. Run-off cover usually lasts for six years but other periods of time can be specified. Certain contracts for work entered in to by a professional individual or firm require that ‘Run-Off’ cover be maintained for a stipulated period should the practice cease trading.
Remember: The object of PI insurance is to protect the professional person against their legal liability to pay damages to those who sustain a financial or other loss arising out of the professional’s ‘negligence’.
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