Professional Indemnity Insurance
John McDonald on professional indemnity insurance
PROFESSIONAL indemnity insurance is a liability policy to protect against legal liability (whether in contract or tort) for damages from an error in the professional services provided by the holder. It does not cover defective workmanship or contractor’s supervision.
For design and build contractors, this insurance is required in addition to policies such as Public Liability and Contractor’s All Risks.
A key aspect is that such policies are on a ‘claims made’ basis: It is the policy In force at the time the claim is first made against the policy-holder and notified to the insurer, rather than when the alleged negligent act or error occurred.
The T&Cs stress the awareness and timely notification by the policyholder of a claim. Failure to notify in line with the terms may entitle the insurer to decline the claim, and if the failure to notify a pre-renewal claim occurs after the policy has been renewed, insurers may be entitled to cancel it.
A formal claim relating to a dispute or issue may not be made against a policyholder immediately. If a contractor complies with its obligation to rectify a defect, a claim may never materialise.
Most policies allow for this by providing a ‘mitigation of loss’ clause to cover: costs in mitigating or preventing a potential claim, which would otherwise be covered under the policy.
This is subject to conditions, most notably that insurers’ prior consent is required. Advise staff of a potential notification or circumstance as soon as possible.
Most insurers allow a few weeks in which to notify, but this is dependent on the: Policy wording.
Claims usually require extensive technical enquiries to establish what’s gone wrong, who might be responsible, if there is an effective insurance policy, what immediate steps need to be taken and if there is a cost-effective solution.
A manager who becomes aware of a problem should speak to their insurance manager or broker in the first instance, will then advise whether to notify and under; what policy. Once notification is given, this will allow an insurer to decide whether the appointment of an adjuster or solicitor is required.
John McDonald is from Tara Management Services
This article has been reproduced from the Contract Flooring Journal. You can find them at www.contractflooringjournal.co.uk.