The professional indemnity insurance market continues to be challenging, with insurers not only increasing rates but also applying new exclusions and/or restricting cover. Given this, it is crucial to ensure your policy is right for you. Working closely with your broker, you can check your policy terms and conditions and get a better idea of what is covered or not covered under your professional indemnity policy.

Professional indemnity protects your business against the financial loss to your business in the event of any claims arising from negligence, failure to fulfil your duty of care, or acting without reasonable skill, care and diligence. PII should not just been seen as a contractual obligation but an invaluable cover for anyone providing expert advice or services. As with every business, professional indemnity policies will vary hugely from one to the next.

What does professional indemnity insurance not cover?

Typically, a professional indemnity policy will not insure against accidents or events that are covered under other policies. Accidental injury of employees or third parties, for example, may be excluded on a professional indemnity policy because these events would be covered under public liability or employers' liability policies. In addition, underwriters can add specific exclusions to your policy depending on your business activities, so it is important to understand how these can impact the business in the event of a claim.

What is a professional indemnity exclusion clause?

This is an amendment to the standard policy terms and conditions set by insurers, which removes, limits or changes those standard terms. This means that claims originating from excluded causes will not be covered on the policy, or will perhaps only covered to a lower level than the main policy cover amount (sub-limits/inner limits). They are usually added to reduce the risk an insurer is taking on, but often this can pass more risk on to you.

Professional indemnity insurance exclusions

Whenever a non-standard exclusion is added, your broker has a duty to inform you of how the usual policy has been changed. Still, it is important to read all quote documents when comparing policies, as it is your responsibility to make sure the normal policy terms and conditions are right for you. Do not be afraid to spend time discussing the policy with your broker or insurance company; we are here to support you in fully understanding your cover.

Example case study

  • An insurer is happy to provide a policy for a land surveying firm, but the firm has a poor claims experience for setting-out issues. To prevent further exposure to large claims, the insurer adds a sub-limit to all setting-out work as well as an increased excess. The policy may be for £1 million, but setting-out work is only covered for claims up to £250,000. This means that £250,000 is the most the insurer will pay to defend such claims, even if the claim is for more.

Consequential loss exclusion –

Specifically excludes any liability, which attaches to the insured, as a consequence of negligent acts, errors or omissions (hereafter referred to as “consequential loss”).

For the purposes of this exclusion:

Consequential loss includes (but is not limited to) any loss of profits or production, or interruption of operations and increased costs of working, suffered by any third party, any costs incurred to clean up any seepage or pollution and any bodily injury or property damage.

Case study example

A development of residential homes is being built, but there are mistakes in measurements for the setting-out. This could result in the houses being built in the wrong place, meaning the developer would have to rebuild the homes in the correct position. This could cause a delay in completion of the project as well as an additional cost to rebuild. The profit loss incurred by the client would be a consequential loss. The insured's policy would cover a claim for professional fees, but not any profit-loss claims against them. The claimant would then look to seek recovery of the costs directly against the firm, which is likely to be catastrophic for the business.

Asbestos risks

While you may not have any direct involvement in dealing with asbestos, you may come across this while working on a particular project. It is therefore important to ensure there is asbestos cover under the policy, as some policies will exclude this.

Asbestos risks can be defined as:

(a) The presence of asbestos, asbestos dust or materials containing asbestos

(b) The release of asbestos dust

(c) The exposure of persons, buildings or property to asbestos dust or materials containing asbestos

For TSA members

A typical exclusion on our TSA scheme offering would read as follows:

Any asbestos Risk, whether relating directly to, indirectly to, or in consequence of asbestos risk.

This shall not apply to any such liability arising from any actual or alleged breach of duty in the

performance of (or failure to perform) professional business, provided that no indemnity shall be

granted in respect of:

(a) Any liability directly or indirectly resulting from asbestos inspections carried out by the insured

(b) Any liability arising out of or in any way involving any bodily injury or fear of suffering bodily injury

 

The liability of the underwriter for civil liability and defence costs arising out of all claims notified

during the period of insurance directly or indirectly resulting from asbestos risks shall not exceed

£250,000 in the aggregate.

This example incorporates cover for £250,000 in the aggregate rather than completely excluding it, which you may find on other insurer's wordings.

In certain circumstances, insurers have agreed to increase this limit if required with our scheme insurer, these requests are usually driven by contractual requirements.