For example:
" A firm of company registration agents
was consulted by a business wishing to use
a particular name. The company registration
agents advised that the chosen name was available,
however, a company with a similar name issued
legal proceedings. The company registration
agents firm was forced to pay the claim.
" Structural drawings were prepared
for the construction of steelwork. The drawings
allegedly contained errors causing delays
in construction due to the alterations required.
Consequently, a claim was submitted for the
cost of those delays.
" A patient undergoing plastic surgery
is rendered partially blind in one eye. Claiming
improper treatment, the patient is awarded
a settlement.
Professional Indemnity premiums can be quite
expensive, however, they are usually also
retrospective. Professional Indemnity insurance
is written on a Claims Made and Notified basis.
This means that a circumstance or event, giving
rise to a claim, may still be covered even
if it occurred prior to the policy being effected.
Because of the nature of liability claims,
it may be years after the event occurred before
a claim is actually made. As long as the insured
has no prior knowledge of a potential claim
and the actual claim is made during the Period
of Insurance, the date of occurrence doesn't
really matter.
This differs from other types of liability
insurance policies, which, for the most part,
are written on an Occurrence basis - i.e.
the incident must have occurred during the
Period of Insurance, and a claim may be made
at any time afterwards.
Retrospective cover on Professional Liability
insurance can be limited, however. If the
insurer chooses not to cover incidents that
might have occurred in the past, it may invoke
a retroactive date limitation. This will limit
cover to incidents occurring only from the
date specified - in most cases the date of
policy inception.
For example:
Archie's Architectural Services held a Professional
Indemnity policy with Professional Indemnity
& General (P.I.G.) from 1st July, 2000
until 30th June, 2005. Becoming frustrated
with the somewhat pig-headed attitude to service
at P.I.G., they decided to go elsewhere. They
switched to W.R.G (We're Really Good) Insurance
and effected a Professional Indemnity policy
with them.
W.R.G. decided to write the policy using
retroactive date limitation from the date
of inception (i.e. 1st July, 2005). If the
retroactive date limitation had not been applied,
W.R.G. would have been open to claims for
incidents dating back to when Archie's Architects
began operating. With P.I.G. also in the mix
there was the potential for some big courtroom
bunfights!
Instead, W.R.G. will only consider claims
made for incidents occurring from the date
of inception of the policy.
Obviously, a policy without a retroactive
date limitation is more advantageous to the
insured, however, the policy will be more
expensive and the insurer is not obligated
to offer it.
Professional Indemnity insurance, then, is
a vital part of any business that provides
services and advice based on its proclaimed
expertise. It not only provides peace of mind
for the business operator, but also for the
clients who faithfully rely on that expertise
at some risk, either financially or physically.
So, are you an expert yet?
