If your business provides a service of any kind, professional indemnity (PI) insurance is an essential protection in case you find yourself the subject of a legal claim in relation to the professional services provided and potential breaches of professional duties.
For some professions, such as accountants, architects, engineers, lawyers, medical professionals, IT consultants and real estate agents, holding PI insurance is a licensing requirement and a condition of being able to practice.
For others it's an important precaution against allegations of errors or omissions in the professional service being provided — even if there's no fault on your part there may still be legal costs to be met to defend a claim.
It's important to be aware that not all PI policies are the same. The terms may vary depending on the insurer and there can be exclusions to coverage under particular conditions. These may be based on your profession, the nature of the risks involved or the insurers' underwriting approach.
To ensure you choose the right PI insurance it's a good idea to have a comprehensive understanding of the policy to ensure that you're getting the protection you need in your industry and which apply to your specific situation.
Professional indemnity insurance policy exclusions to look out for
Unsurprisingly most policies exclude claims arising from criminal acts such as fraud, but there are also less obvious exclusions and restrictions to be aware of, outlined below.
Known claim or circumstances exclusions
A common exclusion which hinges on prior knowledge at the time of taking out a PI policy and applies to:
- claims made before the inception of the policy
- any pre-existing or known factors prior to the policy inception that could be the basis for a future claim under the policy
- if any such factors were disclosed or notified to a potential insurer before signing up for the policy.
Contractual liability exclusions
This exclusion applies where your business holds contracts with third parties that include liability for:
- warranties
- indemnities
- hold harmless terms
- work performed by others.
In the absence of a formal contract or agreement some PI policies may provide a writeback for liabilities that would normally apply.
A writeback in insurance terms can provide coverage for losses that would otherwise be excluded. The protection provided under a writeback may depend on the type of services provided and the individual insurer.
Bodily injury and/or property damage exclusions
Many PI insurance policies exclude injury or damage claims, although some may provide writeback for such claims if they stem from a breach of your professional duty.
Trading loss exclusions
Claims for trading debts or losses incurred while running your business are generally excluded because PI policies are intended to apply to claims for compensation by clients or customers, ie: third parties.
Asbestos exclusions
Asbestos exposure is often excluded in PI policies due to the high risk and potential costs. Asbestos related claims can be extremely costly due to the long duration of asbestos related diseases.
Timing can be critical in professional indemnity insurance protection
The following exclusions are based on the timing of the inception of the policy and the date that the coverage becomes applicable. As PI operates on a 'claims-made and notified' basis, this means claims must be made and reported to the insurer during the policy period. Claims reported after the policy expires are not covered.
The critical date of policy cover for PI is referred to as a 'retroactive date'. Conduct of the business prior to the retroactive date (usually stated in the policy schedule) is excluded under the policy.
Retroactive date explained
- policy inception: covers claims for services provided after the policy start date. Common for first-time PI insurance buyers.
- specific date: covers claims for breaches occurring on or after a specified date. This date may align with when the business started or when PI insurance was first purchased.
- unlimited: covers claims for breaches regardless of when they occurred, as long as the claim is made and reported during the policy period. This is the most comprehensive option.
If switching insurers, ensure the new policy has the same retroactive date as the previous one to avoid gaps in coverage. A gap in coverage may result in exclusions for breaches occurring during the uncovered period.
How a broker can help navigate professional indemnity exclusions
The above list isn't exhaustive — you may encounter other types of exclusions in the PI coverage offered by different insurers. Gallagher insurance brokers are experts in policy wordings and can recognise where and when exclusions are imposed.
Connect with our team of experts to gain valuable advice about changes in terms when renewing or taking out business cover.
