With allegations against engineers for breaches of professional duty becoming more common, it is essential your professional indemnity (PI) insurance provides financial protection in the event of a claim. Unfortunately, unwanted hiccups often occur come claim time if you’re not diligent with keeping your insurer informed.
Maximise your PI cover and ensure you’re not left uninsured in a claim by follow these five important rules.
1. Duty of Disclosure – if in doubt, notify the insurer!
PI insurance is offered on a claims made basis. A claims made insurance policy means you must have a policy in place at the time you are first made aware of a claim or potential claim, or are first notified of circumstances that could lead to a claim.
What could this mean for you? As an insured, you have a duty to notify your insurer as soon as you are made aware of a potential claim. If your PI policy renews and you have not declared a matter you were aware of, insurers might look to deny an insurance claim.
In essence, any circumstance that you feel could reasonably lead to a claim should be communicated to your insurer. However, what appears reasonable to you might not be viewed the same way by an insurer, so the golden rule is: if in doubt, notify.
2. Include ALL insured names
All of your trading entities, and consequently all entities that could possibly be drawn into legal action as a result of an alleged professional breach, must be noted as ‘insured(s)’ under the PI policy. You can check this on your policy schedule.
How could this impact you? If one of your trading entities is omitted from the list of insureds on the policy and a claim is brought against that entity, it is likely you would have no PI insurance protection.
If this changes throughout the policy period, it is essential to inform your insurance adviser so they can see to it that your insured entities are always up-to-date.
3. List and update ALL of your professional services
It is imperative that all business activities or services offered by the engineering firm are noted on the PI insurance policy schedule.
How could this affect you?
An insurer could look to decline a claim if they are unaware of a business activity carried out by the engineering firm that has led to a potential claim.
If your business activities change in any way, be sure to tell your EngInsure broker so they can update this on your PI insurance policy.
4. Ensure your PI policy covers vicarious liability
Working with your EngInsure insurance adviser, you must always make sure your PI policy covers any possible liability you could incur as a result of the actions of consultants, sub-contractors and agents engaged by you to carry out your professional services for or on your behalf.
What are the consequences of omitting this?
If one of these parties is found to have breached their professional duty and damages are brought against them, you could be found partially or fully liable as you chose to engage their services on your behalf.
If your policy does not cover what is termed as ‘vicarious liability’, your insurer might decline any such claims.
5. Continuity/continuous cover clause
Claims made policies (e.g. PI insurance) generally exclude claims that arise from facts and circumstances known to the insured before the start of the policy period. Even though it could be an honest oversight, failure to notify the insurer of a known fact or circumstance that gives rise to a claim could result in an uninsured loss.
Continuity clauses address the above by extending cover under the policy to claims that arise through of a fact or circumstance that could have been notified under a previous professional indemnity policy, but the insured failed to do so.
For the continuous cover clause to apply, the insured must have been insured under a professional indemnity insurance policy issued by the insurer at the time they first became aware of the fact or circumstance that gives rise to the claim.
The claim must have been covered under the previous policy, and the insured must have continuously, without interruption, held a professional indemnity insurance policy with the insurer until the time when they notify the claim to the insurer.
Note: this cover will usually only be provided where there has not been any fraudulent nondisclosure or fraudulent misrepresentation by the insured. Additionally, the insurer’s liability is typically restricted to the indemnity available under the previous policy.
As indicated above, the continuous cover clause is an incredibly important policy feature to consider should you decide to change Insurers at renewal. If you switch insurers, your new PI policy will typically carry a limitation around the continuity date applicable to the policy; it will likely be limited to the day the new insurer took on the policy.
We encourage you to discuss all of the factors above with your EngInsure insurance adviser, who will help ensure your PI insurance policy provides appropriate protection in accordance with your requirements as an engineer.
In summary – disclose, disclose disclose!
Each of the 5 rules we have discussed relate to your duty of disclosure and the information that should be disclosed to the insurer.
Before entering into a contract of general insurance with an insurer, the insured has a duty under the Insurance Contracts Act 1984 to disclose to the insurer every matter that they know, or could reasonably be expected to know, is relevant to the insurer’s decision on whether to accept the risk of the insurance and, if so, on what terms.
The insured has the same duty to disclose those matters to the insurer before they renew, extend, vary or reinstate a contract of general insurance.
Put simply, you have a duty to disclose to the insurer (or your EngInsure insurance adviser) anything and everything that might increase or change your professional indemnity risk. For example, notification of a possible claim, a change to your business activities, additional named insureds, etc.
Remember: It’s in your best interests to keep the insurer informed! If key changes or potential insurance claims are not disclosed and you need to lodge a claim, it is very likely the claim would be denied and you would be uninsured for the loss.
EngInsure prides itself in ensuring our clients have Business Insurance solutions tailored to their specific requirements. If you have any questions, or require specialist advice regarding your Professional Indemnity insurance, we would be more than happy to assist.
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This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 Licence Number 229092 trading as EngInsure Insurance + Risk Services for further information or refer to our website here.