Professional indemnity insurance (PI) has come to our attention again. Councils are concerned as to appropriate levels required of their consultants. On the other hand, consultants feel that the levels required by councils (together with liability and indemnity requirements) are often not that reasonable. Further, Local Government Procurement (LGP) has learnt that insurers are becoming cautious when issuing new policies to their customers and in a number of cases, are withdrawing from certain market segments.
To shed more light on this topic, we will be providing a series of articles in the forthcoming LGP News. This first article is to enlighten our readers about PI insurance generally. Future articles will seek to inform readers on their options when determining appropriate PI requirements.
An insurance policy is a contract under which a party commits to indemnify another party against the occurrence of certain events. With consultancies, council usually specifies the services required. The insurance policy will likewise usually define the particular professional services being covered. It’s important that policy wording reasonably matches the services that the consultant is performing. Some policies may only offer cover for a breach of professional duty (duty of care), whilst others may also offer cover for a breach of civil liability. (Civil law incudes tort law (civil wrongdoing), contract law, statutory law (legislation) and equity (based on fairness).
A query that often arises relates to maintaining insurances after services are completed. As an example, consultancy design services in construction may be completed before physical construction work commences or during early construction. But when does the liability end and thus what period should the insurance cover? With PI, the policy usually covers events occurring during the period of cover. For this reason, council’s contract clauses should include a requirement that PI insurances are maintained for some period (usually at least 6 years), which is the usual limitation of action claims period for claims in contracts.
In the August LGP News, we will explore more aspects of PI. Stay tuned.