Professional Indemnity Insurance
Traditionally professionals referred to the church, medicine and the law. It now it refers to any service provider, where intellectual skill or manual skill controlled primarily by intellectual skill is involved. There must be a predominance of intellectual skill in the exercise of the manual skill.
Many professional firms are partnerships and sole practitioners. In the case of partnership firms, the policy usually covers existing and partners. It will generally indemnify the partners in relation to the negligence of previous partners, for which they may be liable.
Professional Indemnity Insurance covers legal liabilities arising from negligence, in the exercise of professional activities or duties. The policy will be relative to the particular profession or business concerned. Ultimately, the degree and extent of cover depend on the wording of the policy.
Professional indemnity claims may arise from failures to provide proper advice, failures of service and design failures. Professional indemnity policies typically cover legal liability arising from negligence in the conduct of a particular profession and activity.
The policy may refer to breach of duty, which may be contractual or may be a breach of a duty of care owed in “tort”. Even where the policy covers negligence as such, the cover is not excluded by reason of a collateral duty owned under the law of contract.
Professional indemnity policies may also cover other incidental risks, such as breach of intellectual property rights, defamation, or breach of client’s authority. In each case, the cover is usually available, on condition that the breach is done in good faith.
Policies may cover costs awarded against the defendant insured. It may also cover the cost incurred in defending a claim, with the consent of the insured.
In the context of some professions, employees may undertake personally, duties to third parties. This may be based on an individual assumption of a duty of care. In most cases, the liability will be contracted clearly with the firm entity. Solicitors are individually liable under undertakings, whether employees or partners. The professional indemnity policy should extend to cover an employee’s individual liability.
Professional indemnity policies will exclude risks more properly covered under other policies. This includes liability under an employment contract, liability arising from the use or occupation of any lands or buildings, death or bodily injury, other than where it arises by reason of negligent services or advice, contractual liability (that would not otherwise exist in the absence of a contract) and liability arising from the manufacture or supply of products.
Professional indemnity policies do not generally cover deliberate wrongful acts or fraudulent activity. Policies may cover fraud and dishonesty on the part of employees, but such cover would require specific inclusion.
Cover may be extended to certain actions which constitute civil wrongs, provided that they are committed in good faith, such as infringement of intellectual property rights and defamation.
Policies will generally cover costs arising from the claim and the settlement including the insured’s cost and the claimant’s cost awarded or agreed. There may be covers for costs incurred in relation to a claim, with the insurer’s written consent.
Most professional firms are constituted as a partnership. The policy will cover the liability of the firm and partners, as well as new incoming partners during the currency of the policy. Policies will generally cover the liability of previous partners.
The employees of a professional firm or partnership may themselves be personally liable on basic principles of tort law. Generally, professional indemnity policies in favour of the firm will cover the employees’ liabilities in respect of the advice and services provided in the course of employment.
Questions may arise as to whether an outsider has relied on the employee concerned or on the firm. In many cases, the employees will not assume personal liability.
Policies may cover liability in respect of dishonesty or fraud on the part of employees, which is not approved by or known to the insured. They usually provide that the insured must not have indirectly contributed to or condoned the fraud or dishonesty. Policies may cover misappropriation on the part of employees, which causes loss to clients.
Professional indemnity policies will normally exclude liability that should be covered under other policies. This included product liability insurance, employers liability, liability for personal injury, disease, occupiers liability arising from the use of premises and motor insurance. Policies normally exclude liability for damages for breach of commercial contracts in so far as they do not arise from negligent design or advice.
The indemnity may not be available if the loss arises from fraud or dishonesty. The fraud may or may not be that of the insured, depending on the terms of the policy. Policies by their terms may cover negligence, in which event it is presumptively not applicable to fraud.
Nature of Policy
The insured will be obliged to give assistance as required in relation to a claim. Insurers are not generally obliged to contesting the proceedings, unless Senior Counsel advises that they should be contested, on the basis of a sufficiently significant possibility of success.
Almost invariably, professional indemnity policies are issued on a “claims made” basis. Accordingly, the policy covers claims made and circumstances notified in the reference period.
There may be an aggregate limit for any period of insurance, rather than an insurance per event. In certain cases, professional conduct rules require there to be minimum cover per occurrence or event.
Role of Experts
A prominent feature of professional negligence litigation is the proffering of expert evidence in relation to the standard of care. Experts in the relevant field may give their opinions on the action or advice which is claimed to be negligent. This evidence assists the judge in determining whether the defendant has achieved the requisite standard of care.
Although experts have duties to the court, the parties who call them, they are likely to be chosen by the party who offers them on witness on the basis that they assist his case. A feature of professional negligence is the conflict of evidence on the part of experts brought forward by the parties.
Professional regulatory requirements may make it mandatory that there be professional indemnity insurance cover in at least the minimum prescribed terms. Professional indemnity rules in relation to solicitors require that superseded firms be covered by the successor practice.
In this case, the policy must cover negligence by the insured and it predecessors. The predecessors may be the partners of firms or sole practices which it has taken over, together with former partners for whom they might not be liable under partnership law.
There is usually a financial limit per period under the policy. The limit may be inclusive of costs. If costs are separate, there may be a cap.
Professional indemnity claims may provide for the reference of the issue of defending the claim, to the opinion of Senior Counsel. The insurer may agree to defend the claim if Senior Counsel advises that there is a prospect of success. The purpose of defending the claim may be to preserve the insured’s reputation within his profession.