PROFESSIONAL INDEMNITY INSURANCE
(Advanced)
Gwyn Williams F.C.I.I.
working in partnership with:
CII Broker Academy
April 2008
PROFESSIONAL INDEMNITY
Objectives:• legal liability - review structures and understand trends
in collateral warranties, special relationships at law and
limitation
• policy cover - demonstrate an in-depth understanding
of P.I. wordings
• extensions - show and awareness of in-depth cover
issues e.g. mitigation of loss, conditions precedent etc
• markets - identify and evaluate suitable markets for
placing P.I.
Share your experiences !
Slide 2
THE REALITY
Ministry of Justice statistics for 2008 (no. of cases):2007
2008
High Court (QBD) litigation cases 4,794
5,173
Commercial Court
839
1,003
Professional Indemnity (Chancery) 62
147
• Solicitors
31
80
(anticipated to be 3% - 5% of all P.I. Claims )
• Surveyors
1
• Estate agents
1
• Other professions
31
66
Technical and Construction
• Planners, engineers, architects
24
25
(source Post Magazine 28.01.10)
Slide 3
PROFESSIONAL INDEMNITY
The Risks
Slide 4
HOW LIABILITY ARISES
It’s YOUR turn !!
What are the torts in English law ?
What is the rule in Rylands v. Fletcher ?
Other examples of strict liability ?
Slide 5
NEGLIGENCE – 4 STEPS
Forseeable that breach would
cause damage
Breach of duty caused damage
Breach of duty
Duty of care owed
Plaintiff must prove all 4
Slide 6
CONTRACTS
• What constitutes a contract?
• What constitutes a breach of contract?
• How can professionals limit their liability under a contract?
Slide 7
DISCLAIMERS
1. Interpretation
2. Incorporation
3. Doctrine of fundamental breach
Slide 8
UNFAIR CONTRACT TERMS ACT 1977
Limits the extent to which persons can disclaim or restrict
liability in contract or in negligence – excluding any
contract
a) …of insurance
b) …so far as it relates to the creation or transfer of an
interest in land….
c) … so far as it relates to …in any patent, trade mark,
copyright….
d)…so far as it relates to the formation or dissolution of a
company
e)…. so far as it relates to the creation or transfer of
securities
Slide 9
THE CONTRACTUAL CHAIN
Owner
Contractor
Architect
“Collateral Warranty” - a contract collateral to (or alongside)
another contract which creates a contractual relationship, where
otherwise none would exist
Slide 10
CONTRACTS (RIGHTS OF THIRD PARTIES) ACT
Effective from 11th May 2000
Reference included in most policies as a Condition, but
EXCLUDING the application of the Act to the policy
Slide 11
VICARIOUS LIABILITY
Who can be held liable for the actions of others ?
• Employer/employee
• Principal/ agent
• Principal/independent contractor ??????
• Partners
• Personal liability
Slide 12
PROFESSIONAL NEGLIGENCE
“the failure to meet the standards of
care to be expected from the average
competent and experienced practitioner
as to render the professional person
committing the act, error or omission
liable at law to a client or some other
third party”.
NOT PERFECT BUT COMPETENT
Slide 13
PROFESSIONAL NEGLIGENCE
‘Every person who enters into a learned profession
undertakes to bring to the exercise of it a reasonable
degree of care and skill. He does not undertake, if he
is an attorney, that at all events you shall gain your
case, nor does a surgeon undertake that he will
perform a cure, nor does he undertake to use the
highest possible degree of skill. There may be
persons who have higher education and greater
advantages than he has, but he undertakes to bring a
fair, reasonable and competent degree of skill’
(Lamphier v Phipos 1838)
Slide 14
PROFESSIONAL NEGLIGENCE
House of Lords’ Judgement – 03.02.05
Moy v. Pettman Smith & Perry
Test to be applied – “…what was to be expected of a
reasonably competent counsel of the Appellant’s
seniority and experience….”
NOT PERFECT BUT REASONABLY COMPETENT
Slide 15
‘EXPERT’ ISSUES
•
Fit for purpose
•
Expert in particular field or activity
Slide 16
FINANCIAL LOSS IN NEGLIGENCE
To succeed against a party with whom there is no
contractual party the following must apply:
1. Forseeability by professional that third party would be
effected by advice provided
2. Close relationship between professional and third party
– but not contractual
3. Situation must be fair, just and reasonable that the law
should impose a duty upon the professional
Was ‘damage’ suffered as a result of reasonably relying on
competence?
(Hedley Byrne principle)
Slide 17
COMMON LAW V. CONTRACT LAW
What are the differences ?
•
•
•
•
who are the parties involved ?
what proof is required ?
when does the breach occur ?
what damages are awarded ?
V.
Slide 18
RELEVANT STATUTES
(a)Defective Premises Act 1972
(b) Construction (Design and Management)
Regulations 1994;2007 (CDM) - Health & Safety
responsibilities for contract sites including arising out of
the design and specification
(c) Property Misdescriptions Act 1991
(d) Solicitors Act – statutory duty to have P.I. insurance
Slide 19
RELEVANT STATUTES
(e) Companies Act 2006
(f) Housing Grants and Construction Regeneration Act
1996 – adjudication procedure for building and
construction industry
(g) Limitations Act 1980 – 6 years + section 14A
(h) Latent Damages Act 1986 – more time !!
(i) Data Protection Act 1998 – 8 principles
Slide 20
UNDERWRITING
The Risks
The Cover
Slide 21
OPERATIVE CLAUSE
The company will indemnify the insured against liability
at law for damages and claimant’s costs and
expenses in respect of claims arising out of the
conduct of the Business made against the Insured
and notified to the Company during the period of
insurance
Slide 22
OPERATIVE CLAUSES
Civil
Negligent
- Act
- Error
- Omission
Contractual
Liability
Slide 23
PUBLIC LIABILITY
v
Injury/Damage
Advice
PI
P.I.
Financial Loss
(No Injury/Damage)
PI
(Perhaps PL)
Not Advice
PL
No Cover
Slide 24
POLICY TRIGGERS – WHEN?
• Claims Made
Slide 25
POLICY TRIGGERS – WHEN?
• Claims Made
• Retroactive Date - why is it important ?
….EXCLUDES claims arising from things done or
that ought to have been done before the
retroactive date….
or a restriction in cover !
Slide 26
POLICY TRIGGERS – WHEN?
• Claims Made
• Retroactive Date - why is it important ?
• Run Off coverage - why do you need it?
Slide 27
BREACH OF PROFESSIONAL DUTY
By whom ?
– insured
– employee
– agent
– predecessors
– any other person or firm acting jointly with the
insured
Partnerships v L.L.P’s
Slide 28
LIMIT OF INDEMNITY & REINSTATEMENT
• Aggregate
• Any one incident or series of incidents
• Reinstatement
- any one
- round the clock
• Other costs
Slide 29
EXCLUSIONS
•
•
•
•
•
•
•
•
excess/deductible
liability for death, disease, illness, bodily injury to
an employee
liability for bodily injury/damage to third parties
unless arising out of advice, design, specification
or omission to perform a professional duty
liquidated damages
prior circumstances
seepage, pollution, contamination
war
radioactive contamination and sonic bangs
Check each policy carefully
Slide 30
CONDITIONS
•
Claims notifications - immediately or as soon as reasonably
practicable
•
Fraudulent claims – void policy
•
Discovery – 90 days to advise of Wrongful Act (cancellation
by Insurers)
•
Takeover/merger – acts, errors or omissions prior to date
ONLY
•
Law clause – exclude USA/Canada, England & Wales only ?
Check each policy carefully
Slide 31
EXTENSIONS
Standard
–
–
–
–
collateral warranties
breach of warranty of authority committed in good faith
discovery period
dishonest or fraudulent act or omission by employee or
agent
– libel and slander
– loss or damage to documents
– compensation for court attendance
Slide 32
EXTENSIONS
Additional
- infringement of copyright and intellectual property rights
- unintentional breach of confidentiality
- previous firms or partners
- acquisitions
- Housing Grants and Construction Regeneration Act 1996
(architect)
- mitigation costs – generally construction and IT
- payment of customer debt in event of non-payment +claim
threat
- innocent non-disclosure
Slide 33
POLICY SCHEDULE
• Business description
• Limit of Indemnity
• Other costs
• Retention/excess
Slide 34
UNDERWRITING
The Risks
The Cover
Placing risk
Slide 35
“PROFESSIONS” - EXAMPLES
“Traditional”
• Solicitors/Barristers
• Accountants
• Architects/Engineers
• Surveyors
• Valuers/Auctioneers
• Estate Agents
“New”
• Recruitment
• Publishers
• IT consultants
• IT/Telecom providers
• Marketing & Advertising
agencies
• Management consultants
• Financial consultants
• Contractors
Slide 36
RISKS ASSOCIATED WITH PROFESSIONS
A. Charity and Associations
B. Design and construct
C. Management consultant
D. Recruitment consultants
Slide 37
RISK MANAGEMENT
3 steps to Risk management
1.
Assess
2.
3.
Evaluate
Economic control
Slide 38
RISK MANAGEMENT
Professionals attitude to risk management ?
+ives
-ives
Slide 39
10 COMMANDMENTS
Finance
2. Risk management
3. I.T.
4. Procedures
5. Qualify
6. Regulation
7. Other
8. Contract
9. Communication
10. Supervise
1.
(Courtesy of Roger Flaxman - managing partner of Flaxman
Partners – professional liability and risk consultants)
Slide 40
INSURANCE MARKET
Knowing your insurance markets – insurers
• Presenting the risk
• Which insurers to use ?
• Relationships
Slide 41
INSURANCE MARKET
• i – market
• Solicitors
• Presentations
Slide 42
UNDERWRITING
The Risks
The Coverage
Placing
Risks
Getting
Claims Paid
Slide 43
CLAIMS
 Why are professional Indemnity claims different ?
 Civil Procedure Rules – changes with effect from 01.10.09
Slide 44
CLAIMS
• When to notify?
• Who to notify?
• What to notify?
• What is meant by “circumstance that may give rise to a
claim”?
• What are the client’s duties?
Slide 45
PROFESSIONAL INDEMNITY
Objectives:• legal liability - review structures and understand trends
in collateral warranties, special relationships at law and
limitation
• policy cover - demonstrate an in-depth understanding
of P.I. wordings
• extensions - show and awareness of in-depth cover
issues e.g. mitigation of loss, conditions precedent etc
• markets - identify and evaluate suitable markets for
placing P.I.
Please complete the evaluation form – thanks !
Slide 46