Understanding Your Professional Indemnity Insurance Cover

Features of the Allianz Australia Insurance Limited Professional Indemnity Insurance Architects wording

The Allianz ArchiTeam Professional Indemnity policy offers a broad scope of cover.   Each Insurance policy has an opening Insuring Clause, which is an initial explanation detailing insurance coverage.   This wording is a Civil liability wording, which as the name suggests is liability that arises out of civil law, as opposed to criminal law.   Civil liability includes, but is not restricted to statutory obligations such as consumer protection legislation, eg Trade practices law, defamation, infringement of copyright, trademark, patents, plagiarism and breach of confidentiality.  Civil liability wordings are usually broader than an ‘acts, errors or omissions’ wording because it covers civil liability, subject to exclusions.  If you have a civil liability it is most likely that you have engaged in acts, errors or omissions in respect of your conduct of the professional business for which you are liable.

Both defence costs and advancement of defence costs are provided for under the policy.  A benefit of this wording is that defence costs are provided in addition to the limit of indemnity.  The deductible (also known as an excess) under this policy is exclusive of costs and expenses.  Therefore, the deductible is not payable where only defence costs are incurred.

Where the indemnity limit is exhausted by a claim, the indemnity limit is automatically reinstated up to four times.

Liability is extended to the various automatic extensions which are addressed by Section 2 of the policy.  Breach of Contract is an important automatic extension.  Subject to the terms and conditions, the policy will respond to a breach of contract or an alleged breach of contract arising in the conduct of your business.  In respect to Consultants, Sub-Contractors and Agents, the policy will indemnify you for whose acts, errors or omissions you are liable.  It is important to remember that it is only you that indemnity is provided for and not your consultant, sub-contractor or agent.  The consultant engaged should have professional indemnity in place and cannot expect to rely on yours.

The automatic extensions section provides for defence costs in respect to Coronial Inquiries and Disciplinary Hearings.  A bonus Legal expenses section applies sub-limited for non-first party legal expenses you may incur in defending a breach of contract or statutory duty imposed on you.   As are Pursuit costs where cover for legal costs are provided in the recovery of professional fees due to you under a contract.  This is also sub-limited under the policy and subject to various conditions.

Fraud and Dishonesty coverage is provided in respect of a dishonest, fraudulent, malicious or reckless act or omission committed or alleged to have been committed by any other person in the conduct of the business.  However, the policy does not provide coverage if you personally committed or condoned any act, omission or breach.

Documents may become lost, destroyed, damaged or mislaid and if you are able to notify within a specified period of time and show bills or accounts the policy will indemnify you against costs and expenses that you incur in replacing or restoring lost documents.

Liability is limited by exclusions and conditions of any insurance policy.  Obviously a Professional Indemnity policy will not provide cover for duties assumed by you outside the normal course of business.   Further, any fines and penalties imposed are not covered by the policy.

The policy is designed for architects, therefore manufacturing/construction/property development and project manager’s exclusions apply as these activities are not intended to be covered by this policy.   If you do engage in any of these activities, separate Professional Indemnity would need to be arranged outside the master policy.

By way of endorsement the policy excludes pre-purchase and pest or vermin inspection, once again if you are engaging in any of these activities which are beyond an Architects practice, separate Professional Indemnity outside the master policy would need to be arranged.

Both the territorial and jurisdictional limits are worldwide excluding USA / Canada which provides broad coverage for transacting business overseas.

The policy excludes claims or circumstances which you knew had the potential to give rise to a claim under this policy or under any previous policy, or that was first made prior to the commencement of the policy.   Importantly, the policy operates on a ‘claims made and notified’ basis.  This means that the policy provides cover for claims made against you and notified to the insurer during the period of insurance, that is, the policy needs to be in place when the claim is first made against you and notified to the Insurer during that period.  Under this policy a claim is a written or verbal demand by a third party for compensation or damages, or a civil proceeding brought by a third party for recovery  of compensation or damages in respect to an actual or alleged breach of professional duty.  Whether they eventuate or not, it is important to notify all potential circumstances to your Insurer during the current period in order that cover is afforded.  This point cannot be stressed enough in order to meet the conditions of the ‘claims made and notified’ basis of coverage, further the insurer may be prejudiced if the claim escalates and they are not able to be involved at the early stages to mitigate loss.   A continuous cover clause is provided for on-going policy holders.

As with notifying claims, amongst other clauses, the Conditions of the policy, under section 6, request that you notify any material alteration to the risk during the period of cover, including material change in the nature of the professional business.  Insurance policies tend to have a language of their own and words can appear foreign to the reader, a definitions and interpretation section is contained at the rear of the policy and gives further insight to the meaning of words within the various clauses.

Your Professional Indemnity policy is designed to provide coverage for your Professional Business as Architects and it is important to understand the nature of cover, relevant exclusions and conditions of the policy wording.  You will then be aware of your role and responsibilities in utilising the policy to best effect if the need eventuates.

This advice and comments are provided in the capacity as your insurance broker and should not be construed as legal advice.  Separate legal advice relating to the interpretation and implication of this article for your individual circumstances should be obtained.

By Sara Mithen,  Claims Administrator – Austbrokers Countrywide