Engineers Ireland Fire and Safety Division 13 th March Professional Indemnity Insurance

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1 Engineers Ireland Fire and Safety Division 13 th March 2013 Michael Davis Aon Risk Solutions Professional Indemnity Aon 1

2 Aon An Introduction 61,000 Employees Worldwide 500 Offices, 120 Countries Aon Revenue (Aon Risk Solutions, Aon Benfield, Aon Hewitt) Awards for our Service Handle over $74bn in Premium Power Broker Results 50 Tri partite Business Model Proud Sponsors of Man Utd Aon Marsh Willis 10 Arthur J. Gallagher Aon 2

3 What is Professional Indemnity? Form of liability insurance Provides protection from the financial consequences of professional negligence following such a breach or alleged breach of professional duty. Availed of by individuals or firms that may be subject to a claim for a breach of their professional duty of care arising in connection with the conduct of their business. Construction Professions Engineers, Architects, Quantity Surveyors, etc... Property Consultants Estate Agents, Auctioneers, Surveyors, etc... Legal Professions Solicitors, Barristers, Notaries Public, etc... Financial Professions Accountants, Insurance Intermediaries, Financial Advisors, etc... Financial Institutions Banks, Credit Unions, etc... Technology Professions IT Consultants, Software Providers, Developers, Programmers, etc......to name but a few... Not a legal requirement but PI is a compulsory requirement of most professional bodies / institutions. Aon 3

4 Duty of Care As a professional you owe a duty to your clients (and certain other 3 rd parties) to: Exercise reasonable skill and care in the performance of your services. This duty can be extended under contract. Eg: Exercise all the skill and care... Exercise the utmost skill and care... Aon 4

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6 Claims Made basis of cover The policy that is in force at the time a claim is first notified to you or at the time you first become aware of a circumstance which could give rise to a claim that will respond......not the policy that may have been in force at the time the acts, works, services, etc... giving rise to the claim actually took place. There needs to be an active policy of insurance when a claim is notified. If cover is changed higher/lower limits, changes to policy wording, this new cover will apply to all subsequently notified matters. You are obliged to notify all claims / circumstances as soon as you become aware of them. Aon 6

7 What can you be held liable for? Direct losses of the claimant Eg: Remediation, Reperformance, Rectification, Replacement Consequential losses of the claimant Eg: Lost earnings Defence costs Defendant & Plaintiff s legal costs Can be significant: Recent matter settled for 60,000 but with 275,000 costs incurred over a 7 year period Personal Liabilities As a professional you can be held personally liable Aon 7

8 Period of Liabilities Under a standard contract or under the tort of negligence, a claim may be taken up to 6 years after the accrual of the cause of action Under contracts completed under seal or as a deed, a claim may be taken up to 12 years after the accrual of the cause of action. accrual of the cause of action Not always readily identifiable Rule of thumb start counting from the date of practical completion Aon 8

9 The New Building Regulations Impossible at this stage to assess how the new regulations will affect the PI market. There was much concern particularly from Architects over the wide ranging liabilities that individuals would be accepting under the form of wording and certification we originally saw in the draft documents. Initial responses from insurers were mixed: From a risk management perspective, it may be positive to see increased regulation and improved accountability. Insurers are keen to see that this does not push greater responsibility on certain Professionals whilst reducing the liabilities of others. The overall insurability of professionals acting under these regulations was queried. Our understanding is that many of these concerns have now been addressed. Aon 9

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11 Market Trends Extremely volatile market. Reduced capacity the last 3 years have seen a number of significant providers of PI insurance to the Construction Professions exit the Irish market. An equally significant number have restricted the scope and level of cover they are willing to provide. Due to the claims made nature of cover, intermittent market participation can be an attractive gamble for certain insurers: Take the money and run Increase in distressed cases individuals or firms whom the participating insurers have no great interest in providing cover to. Significant claims Deteriorating claims Legacy issues Aon 11

12 Claims Trends Inevitable increase in claims following construction boom. Compounded by the downturn Claim notifications began to increase in the latter half of Continued to increase until late A lot of spurious matters but no shortage of genuine claims also. Frequency the rate of notifications has since reduced Severity PI claims take time to develop. We are now seeing a significant number of claims from develop. Reserves, costs and total settlements are on the rise. Perception among insurers now that we have turned a corner. Aon 12

13 Causes of claims Overall reduction in property prices and slow down in construction activity. Poor quality developments: Principally, concerns remain over multiple unit developments Apartment blocks, Housing estates, Mixed use developments Opportunism & Desperation 1% Rule Civil Liability rules if, as a professional, you have any liability for a loss you may be pursued for 100% of the damages, regardless of who may have been primarily at fault. Last Man Standing claims Lack of corporate memory Professional Errors Lack of proper supervision Junior staff with too much responsibility Pressure to appease clients, complete jobs, move on to the next project, etc... Aon 13

14 Professional Indemnity Insurance Aon Professional Indemnity Insurance 14

15 Claims Examples Last Man Standing Water ingress into the basement of a property Contractor unquestionably at fault Gone bust. No insurance. Claim brought against Engineer & Architect Last Man Standing Legal advisors felt there wasn t sufficient evidence to 100% absolve the professionals from blame. Matter settled by insurers for 3m+ Could this have been avoided with more careful contract management? Aon 15

16 Claims Examples Questionable Circumstances? Commercial premises gutted by fire Expert report suggested cause of faulty wiring in the transformer for a recessed ceiling down lighter Damage was total. Premises was full of solvents (white spirit & acetone) due to ongoing redecoration works M&E Engineer sued. They had specified and certified. Serious questions raised over the veracity of the claim unsuccessful business, coincidental presence of flammable liquids, Settled by insurers for 5m+ Aon 16

17 Claims Examples Certification Many Insurers now explicitly stating in policy requirement for visual inspection before certifying Seems obvious but is a response to series of recent claims No professional involved at construction stage. Subsequently professional engaged to do final certification. Numerous instances where certification was provided without even a site visit. Property certified 85% complete for draw down of finance Loan in arrears, bank took possession of project Only 12% completed 1.8m claim Aon 17

18 Lessons to be Learned Avoiding Claims Risk management Contract review & contract management File Maintenance Record Management Peer review Early notification to Insurers Aon 18

19 Lessons to be Learned Managing Claims Accept realities avoid head in the sand syndrome! Notify all claim & circumstances which you believe could give rise to a claim immediately. Avoid late notification issues If in doubt, NOTIFY IT! Again, avoid possible late notification issues! Cooperate with insurers & legal advisors Obligation under the policy Failure to cooperate may result in invalidating the cover Aon 19

20 Lessons to be Learned Following the Claim How will this impact your PI insurance? Cost Availability of cover What can you do to minimise this impact? Future insurability crucial What lessons have been learned? Have steps been taken to prevent a recurrence? Eg: Establishment of a risk management committee Regular review of all in house policies and procedures. Not just work processes, but employment procedures, complaint handling procedures Engagement with your advisors your institute, your brokers and your legal advisors Aon 20

21 Questions? Thank you for your time If you would like to discuss any aspect of this insurance further please contact us: or Tel: Aon Risk Solutions Metropolitan Building, James Joyce Street, Dublin 1 The comments and views expressed herein are provided in our capacity as insurance brokers and cannot be regarded as definitive legal advice. The foregoing is intended as an overview of certain aspects of Professional Indemnity. The circumstance of any claims examples provided have been altered to prevent identification of the cases or persons involved. All policies are subject to the insuring clauses, terms, conditions, exclusions and endorsements contained therein. Should you have any queries regarding any aspect of your arrangements or the operation of this class of insurance please contact your broker. Aon 21