Frequently Asked
Insurance Questions

Professional Indemnity Insurance (PII) is designed to protect your business against claims made by clients for financial losses they incur as a result of professional negligence, errors, or omissions in the advice or services provided by you or your employees.

The cost of PII cover varies from client to client, there isn’t an average figure that we could quote as the cost of the cover is based entirely on your individual circumstances. It is often based on: your gross fee income, the type of work you undertake, the limit of indemnity you require, the types and locations of your clients, and your previous claims history. Minimum premiums do exist, but these also vary from insurer to insurer.

The limit of indemnity you choose is the most critical decision you will make when arranging your professional indemnity insurance. In the event of a claim, this limit is the maximum amount payable under the policy. You will be responsible for any loss (and costs) that exceed your limit of indemnity.

In recent times, we have seen a significant increase in the size of claims made against our clients. When assessing your requirement, you need to consider a worst-case scenario not only the damages your client may be awarded but you must also factor in their legal costs and any statutory or other interest that could be included. You should be mindful of not just the direct loss they could suffer but also allow for any consequential losses as well. You cannot rule out the potential of a personal injury claim being made against you, such claims are not uncommon against professional practices, especially (but not limited to) ones that have provided Project Management, Project Co-ordination and Property Management services.

There is no exact science in calculating what limit of indemnity you should arrange. This is a decision you have to make and if you are unsure we advise you to obtain relevant independent advice elsewhere, speak to your professional body or contact us for further guidance. We are happy to provide quotations for any limit you require, but Anchorman Insurance Consultants will not select the limit for you and as such we accept no responsibility whatsoever for the choice that you make.

You may be required by your professional body to arrange a minimum level of cover; we would stress that this should be taken as nothing other than being a minimum amount to comply with their requirements, and in no way does it reflect the size of any potential claim you may suffer. You should know your own business better than anyone else, as such you are best placed to understand the services your practice has provided, along with the contract sizes and the types of clients for which you have acted. These are just a few of the many indicators you should consider. If there are other partners, principals or directors, then you must obtain their input in this decision-making process, it would also be advisable to discuss this with your employees, your professional body and even seek legal advice on this matter.

Professional Indemnity Insurance operates on a ‘claims made’ basis of cover. This means that the policy in force at the time a claim is first made or a circumstance is first notified is the one that will respond, provided the notification is made in accordance with the policy terms. It is often not the policy that was in force when the work was undertaken that will respond. Claims arising from professional services can surface months or even years after the work has been completed, which is why the timing of both the claim and any prior notification of circumstances is critical.

If a circumstance that could give rise to a claim is notified to an insurer during the policy period, and that notification is accepted, any subsequent claim arising from that circumstance will be handled under the policy in force at the time the circumstance was notified. This highlights the importance of notifying your insurer as soon as you become aware of any potential issue, even if no formal claim has yet been made. Failure to notify a known circumstance during the policy period could result in the insurer declining to cover a later claim.

Due to the ‘claims made’ nature of this cover, it is essential to maintain continuous Professional Indemnity Insurance, even into retirement or after the cessation of your practice. Once the policy expires, so does your protection against future claims, unless you have either notified the insurer of relevant circumstances during the policy period or arranged appropriate run-off cover. Run-off cover ensures that claims arising from work undertaken prior to the cessation of your practice remain insured, even if they are made years later.

In summary, the key to ensuring your Professional Indemnity Insurance provides the protection you need is to:

1. Maintain continuous cover without gaps in your policy.
2. Notify your insurer promptly of any claims or circumstances that could give rise to a claim, as soon as you become aware of them.
3. Consider run-off cover if you are retiring or ceasing your practice to protect against future claims.

Understanding the Retroactive Date in Your Professional Indemnity Insurance

The retroactive date, specified in your quotation and policy schedule, determines how far back your insurance will cover work you have undertaken. It is crucial to ensure that the retroactive date accurately reflects the start date of your professional activities or the earliest point from which you want your work to be covered. This ensures that all previous work is protected under your policy and avoids exposure to claims that may not be insured.

For RICS members, it is mandatory to insure past work, and we strongly recommend that all professionals in every field adopt the same approach.

The retroactive date is a key element of your policy because it defines the period of past work that is eligible for coverage. If there is a gap in your insurance history or the retroactive date does not cover the full scope of your past work, you may be exposed to claims that fall outside your policy. In such cases, you could be personally liable for any claims, including legal defence costs, settlements, or compensation awarded to clients in the event of a successful claim.

To avoid this risk, always ensure your retroactive date is correct and aligns with the start of your professional practice or the earliest point you wish to cover.

We want to make arranging your Professional Indemnity Insurance as easy and efficient as possible for you; it’s worth taking the time to gather the following information so that when we run through your requirements, you have it all to hand. When you call us, we will run through the process with you so you understand how everything works and what is required from you.

We’ll ask about you and your business, so that we can ensure that the underwriters at the insurance companies have a clear picture of your business, the work you undertake so they can accurately assess the exposure (level of risk) that your business has. The underwriter will identify the level of risk in the various areas of your work, your experience in your specialist field and your approach to risk management.

Here are the most common pieces of information the underwriters need to underwrite your policy and calculate the resulting premium:

• Type of firm:
  • type of legal entity (limited company, partnership or sole trader);
  • the size of your organisation;
  • fee turnover;
  • number of Directors and employees.
• Type of business:
  • your field of expertise;
  • professional activities you perform;
  • type of clients you work with;
  • work undertaken in the past and planned for the future (it is extremely important to disclose ceased activities as well as current and future work as ceased activities can still give rise to claims covered by the policy);
  • Company website, brochures and contracts can also help in ensuring the underwriter builds a clear picture of your business.
• Experience:
  • years of experience;
  • relevant qualifications;
  • CVs of Directors and Principals;
  • Membership of Professional Bodies.
• Contract/Project sizes:
  • overall project costs as well as your specific role e.g. Project Manager, Quantity Surveyor.
• Overseas work:
  • If you undertake (or have done so in the past) non-UK work you need to ensure the territory is covered as many policies exclude the US or Canada due to the litigious environment.
• Working practices
  • o provision of standard letters, terms of engagement, contracts, terms and conditions given to clients prior to commencement of work;
  • o do you hold detailed records of projects such as changes to the original work specification for the duration of the project as this strengthens your defence in the event of a claim.

We will discuss all of these areas with you in detail to ensure we have all the right information before approaching the best insurers for your individual requirements on your behalf. That way you can be sure that you get the best possible cover at the best possible price.

What do we mean by Total Contract Value?

The total contract value (TCV) is the whole cost of a project, not just an individual contractors portion of it. For example if a project manager is working on a new office block the TCV would be the cost of the entire build and not just the fees they are receiving for their work.

Why is it important?

The TCV is a good measure to insurers of the risk posed by a particular project. Generally, the larger the project, the more complex it is with greater scope for errors to creep in. There is more money at stake should something go wrong both in terms of any remedial work that may be required to correct an issue and any potential consequential losses to the building’s owner (for example loss of rent because the office cannot be let to tenants).

It is important to note that professional indemnity insurance responds to allegations; negligence does not need to be proven for an insurer to begin defending its insured and for costs to be incurred. As firms with sufficient financial resources to fund large building projects tend to have the resources to fund robust legal action in the event of perceived negligence so the greater the risk of a complaint or claim being pursued (whether ultimate successfully or not) and for a policy to begin responding.

Given the many different contractors involved in a modern, large scale construction project it is common practice for the lawyers acting on behalf of the claimant to look to involve as many parties as possible with the hope of recovering as much money as possible. Consequently, the larger and more valuable to the project, the greater chance of smaller contractors being caught up in the action.

The risk to property professionals

The risk to the principal architects, engineers and design & construct firms involved in large projects is clear. However, the smaller contractors, quantity surveyors, project coordinators and project managers for example are also at risk from action. As discussed above it may simply be that there is an attempt to bring them into the action and they need the skill and expertise of their insurer to extricate themselves.

Alternatively, they may be judged to have been negligent or partly negligent and the larger and more expensive the project, the greater the likelihood of a costly settlement.