Breege Lynn BA, GDIP, FCII Senior Vice President, Marsh Commercial Dublin

Transcription

1 PROFESSIONAL INDEMNITY INSURANCE MAKING IT WORK FOR YOU 17TH FEBRUARY, 2014 Breege Lynn BA, GDIP, FCII Senior Vice President, Marsh Commercial Dublin

2 Professional Indemnity It s primary purpose The object of PI insurance is to protect the professional person against their legal liability to pay damages to those who sustain a loss arising out of the professional s negligence. Negligence meaning - the failure of that professional to exercise the degree of skill and care expected of a competent practitioner in the same profession. So what is so special about the professional and why doesn t everybody buy PI insurance in case they are sued? A professional is someone who sets themselves apart from everyone because they hold themselves out to be a specialist. Hence the courts will always apply the maxim that - a person who regards themselves as a specialist in a particular field, owes a greater duty of care than does the ordinary person. MARSH February 18,

3 Why? It is the legal liability Insurers look to cover under a professional indemnity policy, not moral liability nor commercial liability. But how does this legal liability arise? In fact how does any liability arise? 1. Through Statute 2. Under Contract 3. Via the torts of negligence, nuisance and trespass In order for an action of negligence to succeed, the plaintiff has to establish three things: 1. That a duty of care existed 2. That there was a breach of that duty of care 3. That damage resulted as a consequence of that breach The professional is expected to exercise not just the normal common law duty of care but a degree of skill and proficiency commensurate with the position held in society. MARSH

4 Drivers of Current Landscape Drivers of Current PI Landscape Regulatory Climate Insurance Company Capacity PII Liability Exposure Increased Governance Economic Factors Claim Trends MARSH 3

5 The Basis of Cover If a professional is sued in a court of law they could be held liable for:- 1. Damages 2. Costs and expenses incurred in defending the case The basis of cover:- A typical operative clause would read as follows:- Underwriters hereby agree to indemnify the insured for any sum or sums which the insured may become legally liable to pay arising from any claim or claims first made against them during the period of insurance as a direct result of negligent acts, errors or omissions on the part of the insured in the conduct and execution of the insured s professional activities and duties There are four important points to bear in mind: 1. Legal liability (Civil Liability) 2. Direct result of negligence (i.e. no cover for deliberate or intentional acts as is the case with fraud & dishonesty) 3. A claim must arise from the professional activities and duties 4. The claims made basis of the cover. This is one of the most important aspects of this insurance and is often written as claims made or circumstance's likely to give rise to a claim which are notified during the period that the policy is in force. The date upon which the actual work was undertaken is irrelevant and a policy need not have been in force at that time. It follows that if the policy is ever cancelled there would be no cover in force for any claims which subsequently MARSH come to light, irrespective of when the work was undertaken.

6 Professional Insurances; Claims Made Insurer is on risk only during the stated policy period for: - Claims arising during the policy year, and -Claims first made against the insured (and notified to the insurer) during the policy year arising from events/losses in prior years. If the Practice receives a claim, or becomes aware of event that may give rise to a future claim during the policy year and does not notify Marsh/Insurer within the policy year MARSH = No Cover

7 Extensions of Cover Typically available Loss of Documents Former Partners Partners previous business Discovery Period;(may allow a period of 3 months for the discovery of claims) Collateral Warranties: to enable those without a contract to have direct recourse against a professional Run Off Coverage recommend 6 years in line with Statute of Limitations MARSH

8 Collateral Warranties Create a contractual relationship with third parties Contract Law v Tort Use standard forms MARSH 7

9 Managing Your Professional Indemnity Insurance Cover It is important that all incidents which may give rise to a claim are reported promptly. This ensures that your insurance entitlement is not prejudiced Remember you do not need to be wrong to be sued! There are three scenarios that may give rise to a claim 1. Possible Circumstances 2. Threat of Action 3. Legal Action MARSH 8

10 1. Possible Circumstances A situation has occurred that could lead to the practices PI insurance being exposed. For example; An error in a practice service Allegations of negligence against an employee of the firm MARSH 9

11 2. Threat of Action There has been a threat of action by someone against the practice, the threat can be verbal, written or even implied. For example; A letter of complaint has been received from a client / solicitor threatening legal action An has been received threatening action A phone call has been received insinuating action will be taken MARSH 10

12 3. Legal Action Initiated The Practice receives notice that court proceedings have been issued. For example; A letter has been received informing the Practice that legal action has been initiated Plenary Summons has been received by the Practice A Special Summons has been served on the Practice MARSH 11

13 Client Complaints Do s & Don ts Do discuss with insurance advisor Do not admit liability or agree to any settlement Do not dismiss as having no merit MARSH 12

14 New PI Notifications Checklist All notifications to Broker/Insurer should include the following: Executive Summary (incl chronology of events) 250 words max of what happened incl statement as to nature of threat / circumstance Estimate / judgement as to the Practice s exposure Estimate of quantum involved If possible, indication of the likelihood of a successful claim Attach all relevant correspondence and documents in relation to the matter with relevant parts highlighted MARSH 13

15 Definite No-Nos! Nos! NO Notification on the Eve of Renewal No Laundry Lists MARSH 14

16 Quarterly Updates Every quarter all staff should be asked to confirm that there are no unadvised developments / notifications/ circumstances which may give rise to an exposure for the Practice MARSH 15

17 Lessons Learned from Claims File maintenance / record keeping Confirm client instructions in writing Late notification MARSH 16

18 Closing PII Cases Within Your Practice The matter was reported as possible circumstances & unlikely to materialise into a claim/threat The matter has been resolved PII Cases can be closed if: There has been no developments / correspondence for two years The other party has confirmed that the matter will not be pursued Practice Partner advises in writing that case can be closed, and reason for doing so. Case removed but remains on cover until that passage of the Statute of Limitation Cases can be re-instated at any time MARSH 17

19 Insurer Concerns at Present Economy/Environment Blame Culture, Last Man Standing, Costly Legal System Impact of the BCAR longer term Recurring themes such as Uncertainty on scope of services Valuations Traditional Professional PI Claims questions surrounding capabilities and qualifications Firms doing more for less under increasingly onerous contract Ability to fund risk MARSH 18

20 Implications of BCAR Insurer Responses Interests aligned in terms of transparency/accountability, improved standards, recognition of design input etc. Improved language on Certificates much welcomed Reliance on Ancillary Certificates rights of recovery against 3 rd parties also welcomed Reference to Reasonable Skill and Care is important Cover will be afforded for Certifier role under Marsh SCSI PI Facilities XL, Liberty, Zurich, AIG Letter of Comfort being issued by Insurers for clients renewing/incepting insurance prior to 1 March 2014 MARSH 19

21 Implications of BCAR Insurer Responses PI proposal form questions to be expanded by Insurers Insurance policy sections should not conflict with defined roles of Certifiers eg Contractual Liability, Regulatory Action Extensions of Cover to include defence costs arising from any prosecutions under BCAR You need to clarify with your own Broker/Insurer & Advise if you are taking on the role of Certifier Impact on Insurance Premiums. Claims Made Policies. Ensure your contractual obligations do not extend beyond statutory duty LDI MARSH 20

22 Professional Indemnity Insurance MARSH 21

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