Not all wordings are created equal. Cover varies between policies, making the close analysis of your policy incredibly important in ensuring your business is genuinely protected from the risks it faces.
In this article we will be discussing the extent to which policy wording can vary – and what actions a business can take to make sure its own policies are thorough and appropriate.
Architects & Engineers professional indemnity: Understanding wording
The architects and engineers (A&E) Professional Indemnity (PI) market includes a sizeable number of insurers and Managing General Agencies (MGA's) with an appetite to write the business. In terms of policy cover available in the A&E market, there is a wide selection of broker and insurer wordings on offer.
So, how do we differentiate between the different covers and wordings available?
PI policy wordings can take a number of different forms. Some policies simply list the heads of cover under the insuring clause, whilst others have a simple insuring clause and then follow with a number of extensions of cover.
Regardless of how the wording is structured, the basis of cover should be on a full Civil Liability basis. If the wording is restricted in any way to errors and omissions only, as some in the market do, then this should be treated with extreme caution as this means in simple terms that if something is not specifically covered under the policy then it is excluded – not ideal!
Civil Liability is the opposite, whereby if wording is not specifically excluded then cover will apply subject to policy terms and conditions. As you might imagine, this is much more beneficial to the policyholder.
Our answer
To avoid this issue, Lockton has developed an A&E policy wording that is written on a Civil and Legal Liability basis, with a number of additional coverage clauses that cater for the needs of the A&E profession. The Lockton wording includes but is not limited to:
- Dishonesty of employees
- Loss or damage to documents
- The insured's participation in a joint venture or consortium
- Fitness for purpose arising out of the performance of the insured's professional business
- Costs incurred by the insured where a third party has infringed on the insured's intellectual property rights
- Prosecution defence costs
- Compensation for court attendance
- Indemnity to principals
- Mitigation costs
- Ombudsman awards
- Public Relations costs or “Crisis Management” to mitigate or avert damage to the insured's reputation following a claim or circumstance
- A variable excess clause
The Lockton A&E wording also includes a costs exclusive policy excess. This is not standard in the A&E market and we are seeing more costs inclusive excesses being applied as the market hardens. Our costs exclusive excess is certainly beneficial to the insured by not having to pay the excess twice for a claim that incurs damages and costs.
Cyber Liability: A modern requirement
With the enhancements in technologies over the years, architect and engineers are now more reliant on IT and computer systems than ever before.
Collaborative platforms, such as building information modelling (BIM), increases cyber risk for construction professionals. This is especially relevant when BIM level 3 is implemented, as this is when all parties are working on a single integrated model.
The insurance industry has developed a number of solutions to provide protection for cyber risk. These range from small inner limits within existing liability policies to full-blown standalone cyber policies covering the first and third party risks. Lockton's A&E wording includes an extremely wide definition of Cyber Liability (third party risks) and does not restrict the cover to an inner limit.
Conditions Precedent: Don't get caught out
Policy wordings that include Conditions Precedent language should be avoided at all costs.
A condition precedent is a contractual term which, if beached, could entitle an insurer to reject a claim regardless of whether prejudice is suffered. If Conditions Precedent language is present in the wording it will likely be found in the claims conditions.
We would always recommend policies that include claims notification conditions, allowing claims or circumstances to be notified “as soon as reasonably practicable” and never a Condition Precedent to liability with a specific time period to notify the claim or circumstance. There are A&E policies in the market that insist on claims being notified to insurers within 14 days - in our view, these conditions are not practical for those insured. The Lockton A&E wording does not include any Conditions Precedent language nor does it include specific time periods to notify claims or circumstances.
Sub-limits: Learning more about liability
Care must also be taken with any elements of cover that are provided under sub-limits, such as cladding. This means that if an excess layer (an increase to the limit of liability) is purchased, any primary covers provided under inner limits will not flow through to the excess layer(s). If the sub-limited covers are provided on an aggregate basis then these will be even more restricted – a far from ideal outcome for the policy owner.
A hot topic in the industry at present is cover for cladding exposures.
While we could dedicate a whole article to cladding issues, the purpose of discussing the subject here is to highlight that almost every insurer has taken a different stance to insuring their cladding exposures. Current insurer stances to cladding, and fire safety issues in general, include but are not limited to total exclusions, aggregated inner limits, increased excesses, ACM exclusions, and excluding any work carried out above 18 storeys.
In addition to understanding the cover offered by your primary insurer, attention must also be given to the cladding cover provided by any excess layer policies purchased. Unfortunately, it is not uncommon in the current market for excess layer insurers to refuse to follow the primary cladding cover, leaving discrepancies in the programme with different cladding restrictions applying to different layers.
Expert cover reviews by Lockton
This is, unsurprisingly, a nuanced area of cover. This can leave businesses unsure of who to turn to for accurate advice – far from ideal in the fight to protect your operation against the risks it faces.
Lockton is happy to offer reviews of your PI cover and its wording. Our experts will honestly appraise and advise, leaving you with a better understanding of your cover and its wording. For an independent review of your PI cover, contact your Lockton advisor today.