Professional Indemnity insurance coverage explained
Professional Indemnity Coverage can include claims that arise:
- when a third party, usually a client, alleges that your professional advice, design or service is Negligent and caused them loss – the loss can be bodily injury, property damage or financial loss;
- from a breach of the duty that you owe as a professional or an expert;
- or as a Civil Liability from the conduct of your professional services.
Below we explain the vital differences between Civil Liability and Negligence Liability coverage for professionals
What does Civil Liability cover mean?
In its very simplest form under a civil liability wording if a claim isn’t specifically excluded then it is assumed to be included! It is considered to be a broader wording as the interpretation of what could be considered a claim tends to be more comprehensive.
Why is this significant?
This is significant regarding coverage as rules and legislation change often and most businesses may not always be aware of them. Consequently if an insured is found liable for damages in a civil court due to their advice they “may” be covered – even when it is not specifically included in the policy – as long as it’s not an exclusion it could be a Professional Indemnity claim.
The 4 main areas of Civil Law include:
- Tort Law (negligence, nuisance defamation)
- Contract Law (breach of conduct)
- Statutory Law (consumer protection legislation)
- Equity (principle of fairness)
So what is a Negligence Policy and how does it differ?
Again in its simplest form – if a claim in not specifically included in the policy … it is excluded. The intention of a Negligence Liability policy is to cover losses where it can be shown that:
- the insured owed a duty of care to the claimant
- they breached that duty and
- their breach caused a financial loss
But more importantly it needs to be proved that the insured was indeed “negligent” and breached their standard of professional care. This is ok if a breach falls under the Tort of Negligence but what if claim is due to other legal grounds such as libel and slander, copyright infringement or misrepresentation?
These do not fall under the tort of negligence and could be denied by the insurer. Therefore, a Negligence policy cover differs from a Civil Liability policy cover in as much as it’s considered to be more restrictive in its scope of cover as negligence is not the only basis of risk exposure to be considered.
Fundamentally the difference in coverage lies in the nature of the liability in carrying out their Professional Services:
- Civil Liability policy cover will focus on the Nature of the liability concerned;
- Negligence policy cover will focus on the actual Conduct of the insured.
Professional Indemnity insurance case studies
As these case studies demonstrate, any professional service provider can be held liable for their actions. These case studies are examples of the types of claims that may be covered under a Professional indemnity policy, but not under a Public Liability policy.
The building consultant
A building consultant was involved in constructing a house. The owners claimed that the weatherproofing failed and sued the consultant alleging negligence. The matter went to a judicial settlement conference.
The building consultant was exonerated but still had to pay over $20,000 in legal costs.
An accountant was asked by the client to consider the accounts of the business he planned to buy. The client’s business partner had an accountant who provided the figures. The client went on to buy a share in the business.
The business did not do well. The client then claimed against both accountants for providing negligent advice. The claim was later settled and the second accountant paid $25,000 to the client in settlement.
Although the first accountant was not found negligent, his defence costs amounted to over $100,000.
The building designer
A building designer prepared a town planning application for a self-storage facility using computer-assisted design. While preparing the drawings, there was an error inputting data into the system resulting in the development being three metres shorter than the town planning drawings.
The property was subsequently sold to a development company. During construction it was discovered that only 198 self-storage units would be constructed and not 235.
The property developer is suing for over $500,000 in damages due to loss of income and value of business.
The occupational therapist
An occupational therapist interviewed the claimant for a position as an accredited rehabilitation provider. The therapist rejected the application as he felt that the claimant did not have the requisite WorkCover qualification.
In the same year the occupational therapist discovered that the claimant was working as a case manager for another rehabilitation provider. As the occupational therapist was concerned that the claimant did not have the qualifications he wrote an email to WorkCover and the members of the Association of Rehabilitation Providers in the Private Sector.
The claimant alleges that he is appropriately qualified to practice and that the email was defamatory and has injured his credit, reputation and occupation. The claimant is seeking compensation for general loss of business, custom, and aggravated damages in excess of $300, 000.
*Article produced by Vero Profin for public information.