| Thursday, 8th of January 2009 |
frequently asked questions (FAQ's)
- What is Professional Indemnity insurance?
- Who is a Professional?
- What is the difference between 'claims made' and 'claims occurring'?
- What is the difference between 'costs inclusive' and 'costs exclusive'?
- What is an 'aggregate' limit?
- Is my Professional Indemnity insurance a renewable contract?
- What is a retroactive date?
- What is Directors' & Officers' Liability insurance?
- Do claims under a D&O policy only come from shareholders?
- What is a 'wrongful act'?
- Why do I need a Directors' & Officers' Liability policy if I have a Professional Indemnity policy?
- How do I get a quote from P.I. Direct?
| 1. |
What is Professional Indemnity insurance?
Professional Indemnity insurance protects a person and/or company against claims made against them by a third party for financial compensation arising from a breach of their professional duty. The law requires certain people, such as architects, accountants, solicitors and insurance brokers, for example, to exercise an appropriate level of skill when giving advice to other people. Financial loss, injury or damage that arises from a failure to provide that appropriate level of skill could result in an award for damages being given to the third party that suffers the loss, injury or damage. The Professional Indemnity insurance will pay for the damages awarded against the Insured person and/or company plus any costs or expenses incurred in defending the claim, subject always to the terms, conditions and exclusions contained in the actual policy document.
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| 2. |
Who is a Professional?
Anybody who has the requisite qualifications or experience and gives another person advice of a skilful nature, which might be relied upon, may be considered a professional person. This would include doctors, lawyers, accountants, real estate agents, computer consultants, financial planners, mortgage brokers and a host of other occupations.
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| 3. |
What is the difference between 'claims made' and 'claims occurring'?
Professional Indemnity and Directors' & Officers' Liability insurance, for example, are known as ěclaims madeî policies. This means that any claims or circumstances which might lead to a claim, must be notified to the Insurers immediately they come to the attention of the Insured and within the period of insurance. The actual incident, which lead to the claim or circumstance, may have occurred in a prior period of insurance (please also refer to Question 7 What is a retroactive date?).
Public Liability insurance policies are generally underwritten on a 'claims occurring' basis. This means that it is the Public Liability policy that was in force at the time of the occurrence causing the injury or damage that responds, notwithstanding that the claim may be made many years after the incident.
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What is the difference between 'costs inclusive' and 'costs exclusive'?
A 'costs inclusive' excess or deductible on an insurance policy means that the Insured must pay their retained excess towards the legal and other costs and expenses incurred in defending a claim against them.
Conversely, a ěcosts exclusiveî excess or deductible means that the Insured does not have to contribute to the legal and defence costs but does have to apply the retained excess to the settlement of the claim itself.
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| 5. |
What is an 'aggregate' limit?
Professional Indemnity and Directors' & Officers' Liability policies have an aggregate limit of indemnity or sum insured. This means that a policy may have a sum insured of $5,000,000 any one claim but that is also the total amount that will be paid in a policy year. Therefore, if a $5,000,000 claim is paid at the beginning of the year, there will be nothing left to pay any further claims that arise later on.
It is possible to purchase one or more automatic reinstatements on the policy, which means that if a claim is paid, the sum insured is
automatically reinstated to its original limit. One automatic reinstatement, for example, allows the aggregate limit to double but it
should be noted that the limit for any one claim remains the same, e.g. $5,000,000 any one claim and $10,000,000 in the aggregate.
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| 6. |
Is my Professional Indemnity insurance a renewable contract?
Insurance policies are generally annual renewable contracts of insurance. This means that your motor vehicle insurance policy, for example, can be renewed each year with the same Insurer without having to complete a new proposal form. You still have a duty of disclosure to the Insurer if there are any material changes to the risk (e.g. adding a young driver to the policy) but you do not have to fill in a new proposal to renew the policy.
Professional Indemnity and Directors' & Officers' Liability insurance policies are different. They are not annual renewable contracts. A PI or D&O policy will generally last twelve months but once they reach the expiry date, the policy lapses and the contract between the Insured and the Insurer ceases.
That is basically why the Insured needs to complete a new proposal form for these classes of insurance each year. The Insured will be entering a new contract of insurance with the Insurer (please also refer to Question 3 ń ěClaims madeî policies).
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| 7. |
What is a retroactive date?
The retroactive date shown on the policy is the date after which any errors or omissions of the Insured are covered. Any errors or omissions made before the retroactive date are excluded by the policy. The retroactive date may be the time that the Insured first purchased a Professional Indemnity or Directors' & Officers' Liability policy.
It is important to make sure that the retroactive date is correct. Remember, as shown in Question 3 above, that the actual event that causes a claim to be made under the policy may have occurred in a prior period of insurance, but is only covered if it is notified to the
Insurers in the period of insurance when the Insured first becomes aware of the claim or circumstances.
The act, error or omission must arise from work done after the retroactive date shown in the schedule of the policy for the insurance to respond.
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| 8. |
What is Directors' & Officers' Liability insurance?
Directors' & Officers' Liability insurance covers the individual directors' and officers' of a company for a wrongful act(s) committed by them in their respective roles within the organisation.
The policy does not normally cover the company (or entity) itself other than to provide lawful reimbursement of legal defence costs incurred by the company in the defence of a claim against a director or officer.
The policy can be extended to cover the company (entity) for employment practices claims brought by an employee against the company.
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| 9. |
Do claims under a D&O policy only come from shareholders?
It is a common misunderstanding that only publicly listed corporations need to buy D&O insurance to protect them against claims made by disgruntled shareholders. Certainly, claims can be bought against the Chairman or Chief Executive of listed companies by shareholders if there is an alleged wrongful act committed, which results in shareholder value being eroded. However, claims can also arise from:- Employees
- Creditors
- Government Agencies and Departments
- Competitors
An SME company can be exposed to potential D&O claims, not just publicly listed corporations!
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| 10. |
What is a 'wrongful act'?
A 'wrongful act' is often defined in a D&O policy as including actual or alleged breach of duty, breach of trust, neglect, error, misstatement,
misleading statement, omission or other act done or attempted or any other matter claimed against a director and officer whilst acting in that capacity.
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| 11. |
Why do I need a Directors' & Officers' Liability policy if I have a Professional Indemnity policy?
A Professional Indemnity insurance policy covers a person and/or their company against claims made against them by a third party for
financial compensation arising from a breach of their professional duty. Examples can include an insurance broker overlooking a particular risk exposure to his client's business and not arranging the appropriate insurance protection or an engineer designing a coal washing plant that does not perform to required specifications.
A Directors' & Officers' insurance policy covers the directors and officers against claims made against them by shareholders, creditors or competitors, etc for alleged wrongful acts committed in the running of their own company. Examples can include claims by a competitor for misleading and deceptive conduct under the Trade Practices Act or claims by a Government Department for breach of Workplace Health and Safety.
These are different and distinct exposures and therefore both Professional Indemnity and Directors' & Officers' Liability policies may need to be purchased by an Insured.
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| 12. |
How do I get a quote from P.I. Direct?
Simply have your client download the proposal form from our webpage entitled Proposal Forms and have them complete the document as appropriate.
Return the completed proposal form to our office (please refer to Contact Us for details) and we will normally provide you with a quotation(s) within 48 hours quicker if we don't have to refer the risk to Insurers.
If the quotation is acceptable to your client and we have all the desired information and signatures on the proposal forms, we can normally
bind cover on your instructions. We don't have to wait for Insurers confirmation.
The policy document and Tax Invoice will be sent to you within two (2) weeks of binding cover.
Please forward proposal forms direct to our office in Springwood as per the Contact Us details.
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