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6. Professional indemnity

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					         Professional Indemnity
                                 1




Shylaja Iyengar, CIRM, BIMTECH       9/6/2011
                                 Introduction
                                      2




 The types of risk discussed in this chapter involve risks
    which are not suitable for inclusion in a general public
    liability policy since, other than for the medical
    profession, they do not concern bodily injury to
    persons or loss or damage to material property.




Shylaja Iyengar, CIRM, BIMTECH                         9/6/2011
                                 Purpose of PI
                                       3



 The purpose of professional indemnity is to protect the
    professional persons against legal liability to pay
    damages to persons who have sustained financial loss
    arising from –
       their own professional negligence or
       that of their employees in the conduct of the business.
 The policy offers indemnity strictly on legal liability
  basis.
 Moral liability is not covered

Shylaja Iyengar, CIRM, BIMTECH                                    9/6/2011
                                 Market Overview
                                        4

 Historically PI insurance - a restricted marked focused on
    traditional professions –
       solicitors, accountants, architects and engineers etc – were limited
        to a few specialist insurers.
 Earlier part of Accident department
 Last four decades - taken off as a specialist class of
  insurance in its own right and become highly professional
 u/w become more focused
 Many insurers have withdrawn from high risk areas


Shylaja Iyengar, CIRM, BIMTECH                                        9/6/2011
                                 Market Overview
                                       5




 Dramatic growth in service sectors In the western
    economies in the latter part of 20th century – led to
    creation of new professions -
       Computer industry, telecommunications and
       in UK the privatized education and health sectors
 Traditional professionals have been expanding into other
  and related sectors.
 Professionals, consultants and advisers – earn income by
  charging fees for their services

Shylaja Iyengar, CIRM, BIMTECH                              9/6/2011
                                 Market Over view
                                           6

 But even if advice is freely given, there may still be a liability for
    ‘errors & omissions’
       E.g. ‘Not-for-profit’ organisations such as charities, advice bureaux,
        museums, trade unions can be exposed to litigation risks following
        mistaken advice
 The growth in PI insurance has been underpinned by three
    related factors –
       The readiness of more people to seek professional advice and become
        involved in litigation to achieve redress when expectations have not been
        met
       The availability of ‘after the event’ legal expenses insurance and the use of
        contingency fees and
       The requirement of professional bodies that their members have PI
        insurance to defined minimum standards.
Shylaja Iyengar, CIRM, BIMTECH                                                9/6/2011
                                 Market Overview
                                       7




 Availability of redress is one of the defining factors pf a
  ‘professional’
 Expansion in the activities covered by PI insurance is such,
  that it is now being contemplated to be called “errors &
  omissions” (E & O) insurance.




Shylaja Iyengar, CIRM, BIMTECH                             9/6/2011
                        How does liability arise?
                                    8




Shylaja Iyengar, CIRM, BIMTECH                      9/6/2011
                             1.   Common Law and Tort
                                             9

 Basic principles of law of Negligence – discussed earlier
 These principles – modified and refined with reference to the
    special relationships which arise in different walks of life
       E.g. duty of care owed by a professional person towards his clients and to
        others
 A professional person - since they possess expert knowledge and
    qualifications not shared by many others - owes a duty to their
    clients to exercise that degree of skill which is to be expected of
    a person in that particular profession
       They vouch for their professional competence, their knowledge of the law and
        customary usages applicable to their profession.
       If they are found wanting in these things, they are open to a charge of
        negligence

Shylaja Iyengar, CIRM, BIMTECH                                                   9/6/2011
                                 Standard of Care
                                        10


 Chief Justice Tindal, in an English case Lanphier v. Phipos (1838),
    stated as follows –
     “Every    person who enters into a learned profession
        undertakes to bring to the exercise of it a reasonable
        degree of care and skill. He does not undertake, if he is
        an attorney, that at all events you shall gain your case,
        nor does a surgeon undertake that he will perform a cure,
        nor does he undertake to use the highest possible degree
        of skill. There may be persons who have higher education
        and greater advantages than he has, but he undertakes to
        bring a fair, reasonable and competent degree of skill”.
 Exceptional ability is not postulated, except perhaps from a
    specialist

Shylaja Iyengar, CIRM, BIMTECH                                 9/6/2011
                                 Standard of Care
                                             11


 Where there is a situation that involves, the use of some special
    skill or competence, the test is the standard of the ordinary
    skilled person exercising and professing to have that special skill.
    This is commonly called the Bolam Test.
     “the test is the standard of the ordinary skilled man exercising and
        professing to have that special skill. A man need not possess the highest
        expert skill; it is well established law that it is sufficient if he exercises the
        ordinary skill of an ordinary competent man exercising that particular
        art”. (Bolam v. Friern Hospital Management Committee 1957)
 If a person presents himself as an expert, he is expected to show
    a higher degree of skill than the average member of his
    profession

Shylaja Iyengar, CIRM, BIMTECH                                                     9/6/2011
Sl.        Profession                  How Liability arises
No.                                         19
2          Law
2A         Barristers
           Legally liable for negligence for all the work they do in and out of court.
           Although working with colleagues „in chambers‟ they operate as
           individuals / sole traders. Any „risk management‟ cross-checking or
           cross-referral that takes place happens at a very informal level

2B         Solicitors
            Sole-practitioners represent the highest PI risk within the legal
           profession.      Legal work undertaken involves – social housing,
           immigration or crime represents a low risk environment – personal
           injury claims or domestic conveyancing, a high risk.
           Negligence may also arise in the drawing up of trusts or in administration
           of estates of in any area of a solicitor‟s activity


Shylaja Iyengar, CIRM, BIMTECH                                                  9/6/2011
Sl.         Profession                 How Liability arises
No.
                                           20
3           Medicine
3A           NHS Trusts (UK)
            Created from January 1, 1990 and assumed responsibility for medical
            negligence risks, including claims for damages initiated in earlier years.

3B          Hospitals and Nursing homes
             Private hospitals and Nursing homes purchase insurance a full PI basis or
            on the more focused „treatment‟ basis of cover. “treatment” cover is
            provided as an extension to a general public liability policy. Cover under
            the extension is normally „claims made‟ subject to an aggregate limit of
            indemnity

3C          Doctors
            Personally and Legally liable for negligence.   Generally insured on an
            individual basis

Shylaja Iyengar, CIRM, BIMTECH                                                9/6/2011
Sl.         Profession                How Liability arises
No.                                       21

3D          Nurses
            Personally liable for their negligence in carrying out their skilled
            professional duties. Usually insured through their employers.


3E          Dentists
             Required to take „full indemnity cover‟ before registration from 2005
            (UK)
3F           Pharmacists
             They may attend to minor ailments or accidents in the absence of a
            doctor and errors of treatment may result in claims for professional
            negligence
            Errors in dispensing prescriptions, result in potentially serious
            consequences

Shylaja Iyengar, CIRM, BIMTECH                                              9/6/2011
Sl.         Profession                  How Liability arises
                                          22
No.
4           Finance
4A          Accountants and auditors
            When a company suffers a major loss, e.g. through management or
            employee fraud which the directors alone had a duty to prevent by
            ensuring appropriate controls in place, the auditors / accountants can be
            frequently the target of claims rather than the directors
            Accountants will be liable for
                 •     negligence if they overlook necessary information and
                 •    fraud if they made statements without troubling to substantiate
                     them
            Auditors must state whether the balance sheet and accounts have been
            properly prepared and whether, in their opinion, a true and fair view is
            given of the state of the company‟s affairs at the end of the accounting
            period and of the company‟s profit or loss for the period. They also owe a
            duty of care to the shareholders as body

Shylaja Iyengar, CIRM, BIMTECH                                                 9/6/2011
Sl.          Profession                  How Liability arises
No.                                          23
4B           Insurance Brokers
             Owe a duty to their clients and also insurers when arranging insurances.
             They must carry out their clients instructions and give them proper advice.
             Any breach of this duty may involve them in legal liability.
             The key issue underlying all broking and direct placing activities , and one
             that has promoted many claims, is the need to determine all „material
             facts‟.

4C           Investment advisers
             Liable for negligent or incorrect advice given to clients .
             The pension mis-selling episode in UK that is yet to be satisfactorily
             resolved, arose out of the Government‟s decision in 1988 to allow
             employees to leave a pension scheme arranged by the employer and take
             out a personal pension. Many employees were wrongly advised to leave
             their employer‟s pension fund and take out a personal pension.

Shylaja Iyengar, CIRM, BIMTECH                                                   9/6/2011
Sl.         Profession                  How Liability arises
No.
                                             24
5           Other new consultancies and professions
5A          Advertising and marketing agents
            Claims can arise from such mistakes such as the failure to notice a
            printing error, missed deadlines, defamation or breach of copyright, E&O
5B          Computer consultants
             A computer disk is within the definition of „goods‟ and hence it is implied
            that satisfactory quality and fitness for the purpose apply and the
           software should therefore do what it was claimed it would do.

5C          Educational and research establishments
            Rely heavily on funding received from commercial concerns in return for
            research on leading edge technology or joint initiatives with industry in
            high risk areas such as aeronautics , pharmaceuticals and animal work.
            Cases of negligence against schools for failure to detect dyslexia, or
            identify and provide for pupils special needs


Shylaja Iyengar, CIRM, BIMTECH                                                   9/6/2011
Sl.         Profession                   How Liability arises
No.
5D          Employment agencies
                                              25
            Many specialist agencies supplying executive, technical, specialist or
            professional staff & others supplying medical staff such as nurses, locums
            etc.   The key question is whether the employment agency accepts
            responsibility under their contract for the actions of the staff they supply.
5E          Industrial advice and design
            Manufacturers, who are acknowledged experts in a particular field, can be
            involved in an advise and design risk, unconnected with the supply of a
            product, for which they may charge a fee. Better to seek extension under a
            general manufacturers general public and product liability policy than a PI
           policy
5F          Investigation and analytical services – risk from claims if findings are
            inaccurate
5G          Telecommunications – libel or defamation broadcast via its systems –
            mobiles, terrestrial, satellites etc – also claims for neglect, E & O
5H          Travel agents / tour operators – liable to clients for disrupted holidays /
            travel arrangements due to mistakes in arrangements with tour operators or
            flight companies
 Shylaja Iyengar, CIRM, BIMTECH                                                 9/6/2011
Sl.            Profession                   How Liability arises
No.
5I              Trusteeships
                                                26
                hold property, money and investments legally bound to use that for the
               benefit of the beneficiaries. They are liable any act of negligence, outside
               their authority or in breach of trust, E&O.
5J
              Translators
               Translating scientific and/or technical work where the translator needs to be
               qualified in the subject matter as well as in the languages being used.
5K              ‘Not for profit’ agencies
               for advice given even if no income is received. Includes organisations such
               as citizens advice bureaux, charities, museums trade unions, associations
               and institutes
               Trade unions have risk exposure arising out of legal advice and assistance
               they provide to their members. Major source of claims comes from negligent
               timing in pursuit of claims at industrial tribunals or the courts
6              Internet liability
               first party and third party coverages – E&O, infringement of intellectual
               property rights, defamation, right of privacy and transmission of a virus.
    Shylaja Iyengar, CIRM, BIMTECH                                                 9/6/2011
                                      Summary
                                             27


1.       The basis of liability is negligence which means a failure to
         exercise a fair, reasonable and competent degree of skill as
         judged with reference to the standard expected of the
         profession.
          An expert will be judged by the standard of experts
2. Negligence arises when there is a duty of care, a breach of that
   duty and consequent loss or damage by the breach
3. The duty of care is owed to two categories of persons –
          Those to whom the professional is under some contractual or fiduciary
           relationship. Normally this will be the client.
          Those to whom a duty of care will arise where the professional will be liable
           to persons other than his clients

Shylaja Iyengar, CIRM, BIMTECH                                                   9/6/2011
                                 Summary
                                    28

4. The professional is vicariously liable for the negligence
   of his employees arising out of and in the course of
   their employment
5. Liability may also arise under the Consumer Protection
   Act




Shylaja Iyengar, CIRM, BIMTECH                          9/6/2011
           Professional Indemnity Insurance
                                 29




Shylaja Iyengar, CIRM, BIMTECH           9/6/2011
                                      30

 There could be two counts on which action may be based
    for damages due to negligence –
       The defendant did not have the necessary degree of skill
       The defendant having the necessary skill did not exercise the same
        in a particular case
 The consequences of such an action could be very
    grievous as far as the professional is concerned since it
    may invite unwarranted publicity. Such action may not
    only affect the reputation, but also invite bankruptcy.



Shylaja Iyengar, CIRM, BIMTECH                                      9/6/2011
                                 Applicability
                                       31

 This insurance applies to all the professionals of -
   Medical profession / establishments

   Engineers, Architects, Interior Decorators

   Chartered Accountants

   Financial /Management Consultants

   Lawyers / Advocates / Solicitors and Counsels

 Aggregate limits within geographical limits of India
  including Nepal / Bhutan are covered on annual basis
 Any other professional other than that stated above shall
  also be considered on similar basis

Shylaja Iyengar, CIRM, BIMTECH                           9/6/2011
                                        Policy Cover
                                                       32

                •      P I F O R D O C T O R S & M E D I C A L E S TA B L I S H M E N T S
                •      P I E & O F O R C O N S U LT I N G E N G I N E E R S ,
                       A R C H I T E C T S & I N T E R I O R D E C O R AT O R S
                •      PI E&O FOR CA / FINANCIAL
                       A C C O U N TA N T S / M A N A G E M E N T A C C O U N TA N T S .
                       L A W Y E R S /A D V O C AT E S / S O L I C I T O R S / C O U N S E L S




Shylaja Iyengar, CIRM, BIMTECH                                                                   9/6/2011
                                 Policy Cover
                                      33

 As with all liability contracts, there is no standard wording
  in use for this form of indemnity
 Practice varies among insurers and most insurers have
  different ‘standard’ wordings for different professions
 As well as catering for the financial loss suffered by a third
  party, the key difference between a PI policy and a public
  liability policy is that PI policies are ‘claims made’ basis.
 This is because insurers wish to control their exposure to
  ‘long tail’ risk inherent in this class of business


Shylaja Iyengar, CIRM, BIMTECH                             9/6/2011
                                 1.   Operative Clause
                                           34

Doctors /          Consulting Engineers CA/FA/MC/Lawyers/
Medical            / Architects/ Interior Advocates/Solicitors
Establishments E&O Decorator              / Counsels
Common to all four policies…..

“….that subject to the terms, exceptions and contained herein or
endorsed hereon, the Company will indemnify the Insured for their
Legal Liability to pay compensation including defence costs, fees
and expenses anywhere in India in accordance with the Indian
Law”



Shylaja Iyengar, CIRM, BIMTECH                             9/6/2011
                                 Operative clause
                                             35
 Cover is given on ‘claims made’ basis.
       This means that provided that claims is made during the period of
        insurance, it does not matter when the act of negligence giving rise
        to it took place.
 Important - before issuing the policy, insurer would study the
    proposal form
       to ensure that nothing had happened in the history of the practice which
        would be likely to produce a claim in the future.
 Past occurrence –
       resulting claim would be specifically excluded from the policy.
 Any non-disclosure of a material fact would enable the insure to
    void the policy
       E.g. knowing about the possibility of a claim
Shylaja Iyengar, CIRM, BIMTECH                                                     9/6/2011
                                 Operative clause
                                        36

 Where some specific act or omission occurs during the
    currency of the policy, and claim is made after the policy
    has lapsed.
       the cover will not apply
 Limitation in relation to past negligence and imposition of
    retroactive date
       Happens when there is a change of insurer at renewal. The new
        insurer may decline to cover any claim made after inception w.r.t
        negligence that occurred before the new cover commenced.
        Retroactive date would be the inception date of the new policy



Shylaja Iyengar, CIRM, BIMTECH                                     9/6/2011
                                 Operative clause
                                        37

 Retroactive date can be imposed where the insured –
   has not purchased a PI cover before or

   purchases a new layer. i.e. enhances the limit of liability.

 Insurer may decided not to cover claims arising from negligence
  which took place within a specific period, say three (03) years
  before the inception of the new excess policy and which
  produced claim during the currency of the policy.
   E.g. if an insured opts for a new layer with an inception date of
    01/01/2002, the insurer would apply a retroactive date of
    01/01/2002. Hence insurer would not cover any claims on the
    excess layer where the negligence occurred between 01/01/1999
    and 01/01/2002

Shylaja Iyengar, CIRM, BIMTECH                                 9/6/2011
                                    2.       Indemnity
                                                38
Doctors    &               Medical Consulting Engineers / CA/FA/MC/Lawyers/
Establishments                     Architects/     Interior Advocates/Solicitors/
                                   Decorator                Counsels
• Indemnity applies only           The indemnity arises only to claims arising out of losses
  to claim arising out of ..       and/or damages during the period of insurance first made
• bodily injury and/or             in writing against the Insured during the policy period and
                                   the insured is indemnified in accordance with the Operative
  death of any patient
                                   clause for any breach of Professional duty by reason of any
  caused by or alleged to
                                   negligent act, error or omission, whenever, and wherever
  have been rendered by-           committed or alleged to have been committed during the
• the Insured or qualified         period of insurance by-
  assistants named in the          • The Insured as stated in the Schedule
  Schedule or any nurse            • The Predecessors in business of the said firm in respect of
  or technician employed              whom insurance cover is expressly provided in the
  by the Insured                      Schedule
                                   • Any person at any time employed by the insured or by
                                      such predecessors of any business conducted in their
                                      professional capacity
Shylaja Iyengar, CIRM, BIMTECH                                                         9/6/2011
                                 Provided always that ….
                                            39
Doctors & Medical Consulting           CA/FA/MC/Lawyers/
Establishments    Engineers          / Advocates/Solicitors/
                  Architects/ Interior Counsels
                  Decorator

• such Act during the Period of Insurance results in a claim
  being first made in writing against the insured during the
  policy period as stated in the Schedule
• There shall be no liability hereunder for any claim made
  against the insured for act committed or alleged to have
  been committed prior to the Retroactive Date specified in
  the schedule
Shylaja Iyengar, CIRM, BIMTECH                             9/6/2011
                                 2.   Indemnity
                                       40

  There are two provisions in this clause –
    Such an act during the Period of Insurance results in a claim first
     made in writing against the Insured during the Policy Period
    No liability for any claim for act committed or alleged to have been
     committed prior to the Retroactive date specified in the schedule
  This clause provides the definition of Policy Period, Period
     of Insurance and Bodily Injury.




Shylaja Iyengar, CIRM, BIMTECH                                    9/6/2011
                            Breach of Professional duty
                                            41

  Breach of professional duty by reason of any neglect, error or
     omission occurring or committed in good faith by –
        The insured
        Any employee
        Any agent
        The predecessors
        Any other person, firm or company acting jointly with the insured.
  The liability of the insured is based on liability at law; namely the
   failure to exercise a fair, reasonable and competent degree of
   skill rather than dishonesty or fraud.
  Not every loss caused by an omission or error is covered under
   the policy. Deliberate E&O would not be covered. They must be
   E&O which in principle create liability
Shylaja Iyengar, CIRM, BIMTECH                                                9/6/2011
                            Breach of Professional duty
                                         42

  Professional practices – based on partnerships
  Individual partners and new partners appointed during the currency of
   the policy are also indemnified in addition to the practice itself
  The policy is intended to indemnify not only the existing partners, but
   any new partners who may be appointed in the future.
  Existing partners may still have a liability for negligence occurring
   when they were in partnerships with past partners, since liability is
   joint and several.
  The intention, therefore is to indemnify the existing partners against
   liability which may arise from the practice’s previous negligence. But
   all insurers do not provide this indemnity automatically



Shylaja Iyengar, CIRM, BIMTECH                                     9/6/2011
                            Breach of Professional duty
                                         43

  negligence by employees of the insured is also covered
  In practice, mistakes made by employees are the most frequent causes
   of claims under the policy
  At common, law, the partners are vicariously liable for the negligence
   of the employees, provided such negligence arises out of and in the
   course of their employment




Shylaja Iyengar, CIRM, BIMTECH                                    9/6/2011
                                 Dishonesty
                                     44

  Arising out of any dishonest or fraudulent act or omission on the part
     of any Employee or Agent
    Silkolene case of 1991
    Not uncommon for claimants to confine pleadings to allegations of
     negligence owing to the difficulty of proving fraud and also concerns
     that allegations of dishonesty might invalidate a defendant’s PI cover
    This policy will also include clauses on the following –
    Libel and slander
    Loss of or damage to documents
    Compensation for court attendnce



Shylaja Iyengar, CIRM, BIMTECH                                      9/6/2011
                           Limit of Indemnity
Doctors    &      Medical Consulting Engineers / CA/FA/MC/Lawyers/
Establishments            Architects/ 45  Interior Advocates/Solicitors/
                          Decorator                Counsels
• Irrespective             of the • Irrespective    of the • Total      liability       –
 number of persons or number of persons or compensation                                 +
 entities            named       as entities    named      as claimants costs +
 Insured in the schedule, Insured in the schedule, fees and defence costs
 the total liability of the the total liability of the will not exceed the limit
 company for damages company for damages of indemnity stated in
 inclusive of               defence inclusive of     defence the Schedule
 costs shall not exceed costs shall not exceed Indemnity limit shall
 the limit of indemnity the limit of indemnity represent the total
 set out in the Schedule set out in the Schedule amount of insurer’s
 for Any One Act (AOA) in respect of any or all liability during the Policy
 in respect of any or all claims made against the Period
 claims made against the insured during the
 insured arising out of currency                  of     this
 AOA. Indemnity amount insurance
 is the Aggregate amount
Shylaja Iyengar, CIRM, BIMTECH                                                   9/6/2011
                                 Limit of Indemnity
                                         46

  the total liability of the company for damages inclusive of
     defence costs shall not exceed the limit of indemnity –
    Limit of indemnity is a aggregate limit for any period of insurance
    i.e. On payment of a claim the aggregate limit is reduced by the
     appropriate amount until the next renewal date
    Provision is also made for payment of costs and expenses in the
     defence or settlement of any claims,
    Unlike other liability policies, in PI such costs are usually included
     within the limit of indemnity and not payable in addition




Shylaja Iyengar, CIRM, BIMTECH                                      9/6/2011
                                 4.      Defence Costs
                                               47

Doctors    &               Medical Consulting Engineers / CA/FA/MC/Lawyers/
Establishments                     Architects/     Interior Advocates/Solicitors/
                                   Decorator                Counsels
• All defence costs will be borne by the Insurer. These include -

     • all costs, fees and expenses incurred with prior consent in
        the investigation, defence or settlement of any claim made
        against the Insured
      • The cost of representation at any inquest, inquiry or other
        proceedings related to the claims, provided the claims are
        the subject of indemnity by the policy


Shylaja Iyengar, CIRM, BIMTECH                                                9/6/2011
                                 Defence Costs
                                      48

 




Shylaja Iyengar, CIRM, BIMTECH                   9/6/2011
                   5.(a) Notification Extension Clause
                                               49

Doctors    &               Medical Consulting Engineers / CA/FA/MC/Lawyers/
Establishments                     Architects/     Interior Advocates/Solicitors/
                                   Decorator                Counsels
• Once the insured has given a written notification to the insurer
  about any specific event or circumstance, which the insurer
  accepts may give rise to a claim(s), which form the subject of
  indemnity under this policy, then the acceptance of such
  notification means that the insurer will deal with such claim(s) as if
  they had first been made against the Insured during the Policy
  period.
• The extension under the clause will be subject to the maximum
  time limit laid down under the Indian Limitation Act in force from
  time to time ??
Shylaja Iyengar, CIRM, BIMTECH                                                9/6/2011
                5(b). Extended claim reporting clause
Doctors    &               Medical Consulting Engineers / CA/FA/MC/Lawyers/
                                               50
Establishments                     Architects/     Interior Advocates/Solicitors/
                                   Decorator                Counsels
• If the Policy has not been renewed or has been cancelled by either the
  insurer or the insured, the insurer will allow a time limit not exceeding 90
  days from the date of expiry / cancellation, provided no other insurance
  policy is in force during this extended reporting period for the same
  interest
• for notification of claims for accidents which had taken place during the
  period of insurance but could not be made during the Policy period.

• However, all claims made during the extended reporting period shall be
 handled as if they were made on the last day of the expiring policy period
 and are subject to the limits of indemnity and the terms, conditions and
 exceptions of the policy.
 Shylaja Iyengar, CIRM, BIMTECH                                               9/6/2011
                             6.      Claims Series Clause
                                               51

Doctors    &               Medical Consulting Engineers / CA/FA/MC/Lawyers/
Establishments                     Architects/     Interior Advocates/Solicitors/
                                   Decorator                Counsels

• Where a series of losses and/or bodily injuries and/or deaths are attributable
 directly / indirectly to the same cause or error or omission relating to discharge
 of professional services, all such losses and/or bodily injuries and / or death
 claims shall be added together and treated as one claim.

• Such claim will be deemed to have been made at the point in time when the
 first of the claims was made in writing.

• There shall however, be no coverage of claims made arising from one specific
 cause which are made later than three years after the first claim of the series.

Shylaja Iyengar, CIRM, BIMTECH                                                9/6/2011
                                 7.   Compulsory Excess
                                               52

Doctors    &               Medical Consulting Engineers / CA/FA/MC/Lawyers/
Establishments                     Architects/     Interior Advocates/Solicitors/
                                   Decorator                Counsels

• NIL for Doctors         • For each and every • For each and every
• For             Medical claim, a compulsory claim, a compulsory
  Establishments –                    excess of 0.50% of the    excess of 0.50% of the
• For each and every                  indemnity limit shown     indemnity limit shown
  claim, a compulsory                 in the schedule subject   in the schedule subject
  excess of 0.25% of the              to a minimum of           to a minimum of
  indemnity limit shown               Rs.5000/- and maximum     Rs.5000/- and maximum
  in the schedule subject             of Rs.1 lakh              of Rs.1 lakh
  to a minimum of
  Rs.1000/- and maximum
  of Rs.1 lakh
Shylaja Iyengar, CIRM, BIMTECH                                                  9/6/2011
                         8.       Voluntary Excess
                                        53

Doctors    &         Medical Consulting Engineers / CA/FA/MC/Lawyers/
Establishments               Architects/    Interior Advocates/Solicitors/
                             Decorator               Counsels

• NIL for Doctors
• For              Medical • At the option of the insured.
  Establishments –            • If the insured opts for it, this excess will be
• At the option of the applicable to each and every claim.
  insured.                    • The insurer’s liability for claim, shall attach, in
• If the insured opts for it, excess of compulsory and voluntary excess
  this excess will be
  applicable to each and
  every claim.
• The insurer’s liability for
  claim, shall attach, in
  excess of compulsory and
  voluntary excess
 Shylaja Iyengar, CIRM, BIMTECH                                            9/6/2011
                                           Exclusions
                                                   54
1.          No liability will attach to the Company in respect of –
     I.           Any criminal act or any act committed in violation of any law or
                  ordinance
     II.          Services rendered while under the influence of intoxicants or narcotics
     III.         The performance by dentists and dental surgeons of-
            I.      General anaesthesia or
            II.     Any procedure carried out under general anaesthesia unless performed in a
                    hospital
     IV.          The use of drugs for weight reduction
     V.           Third Party Public Liability




Shylaja Iyengar, CIRM, BIMTECH                                                          9/6/2011
                                                Exclusions
                                                           55
   I.         Claims arising from any condition directly or indirectly caused by or
              associated with -
             Human T-Cell Lymphotropic Virus Type III (HTLV III) or
             Lymphadenopathy Associated Virus (LAV) or
             the mutants derivatives or variations or in any way related to Acquired Immune
              Deficiency Syndrome (AIDS)
             or any Syndrome or condition of a similar kind howsoever it may be named
   vii.       Claims made against the insured arising from the performance of
              Cosmesis. The following are not deemed to be cosmesis –
           Anaesthetic x-ray or other medical nursing or laboratory services
            provided in connection with the performance of cosmesis
           Plastic surgical repair of scar tissue being the result of previous surgery
            unrelated to cosmesis performed by the Insured
           Plastic surgery in connection with burns or other traumatic injury.
                           Cosmesis - cosmetic plastic surgery, hair transplantspunch grafts, flap
                                                  rotations and the like
Shylaja Iyengar, CIRM, BIMTECH                                                                       9/6/2011
                                     Exclusions
                                             56
2.       this policy does not cover liability –
          Assumed by the insured by agreement and which would not have
           attached in the absence of such agreement
          Arising out of deliberate, wilful or intentional non-compliance of any
           Statutory provision
          Arising out of loss of pure financial nature such as loss of goodwill, loss of
           market etc.
          Arising out of all personal injuries such as libel, slander, false arrest,
           wrongful eviction, wrongful detention, defamation etc. and mental injury,
           anguish or shock
          Arising out of fines, penalties, punitive or exemplary damages
          Directly or indirectly occasioned by happening through or in consequence
           of war, invasion, act of foreign enemy, hostilities (whether war be
           declared or not), civil war, rebellion, revolution, insurrection or military
           or usurped power
Shylaja Iyengar, CIRM, BIMTECH                                                    9/6/2011
                                     Exclusions
                                             57
         Directly or indirectly caused by or contributed by-
            Ionising radiations or contamination by radioactivity from any nuclear fuel or
             from any nuclear waste from the combustion of nuclear fuel
            The radioactive, toxic, explosive or other hazardous properties of any
             explosive nuclear assembly or nuclear component thereof
            Arising out of genetic injuries caused by x-ray treatment / diagnosis or with
             radioactive substances
         In respect of professional services rendered by the insured prior to the
          Retroactive date in the schedule
         The deliberate conscious or intentional disregard of the insured’s technical
          or administrative management of the need to take all reasonable steps to
          prevent claims
         Injury to any person under the contract of employment or apprenticeship
          with the insured their contractor(s) and/or Sub-Contractor(s) when such
          injury arises out of the execution of such contract
Shylaja Iyengar, CIRM, BIMTECH                                                    9/6/2011
                                 Conditions
                                       58
1.     Written notice to the Company in the event of any claim or
       circumstances thereof. All writ/summons forwarded by the Company
       immediately on receipt.
2.     No admission of liability or any other offer thereat without prior
       consent of the Company
3.     The Company has right, not obligation to take over and conduct
       defence proceedings and settlement of claim. Any expenditure
       incurred thereof shall reduce the limit of indemnity. This action will
       not in any way modify Company’s liability under the Policy
4.     Insured shall co-operate to provide all necessary information
5.     Material change/circumstances will have bearing on claim provided
       such information or policy condition shall be provided expeditiously


Shylaja Iyengar, CIRM, BIMTECH                                         9/6/2011
                                 Conditions
                                     59
6. Upon any settlement of any claim or series of claims or any
   lesser amount for which claim has been settled, the company
   shall relinquish the conduct and control of any further liability
   in context thereof.
7. The interpretation of the Policy and the schedule shall be read
   together as contract and shall bear such specific meaning
   wherever it may appear. All the terms/exclusions shall be
   interpreted in accordance with Indian Law.
8. Contribution condition stating Company shall not be called
   upon to pay more than their rateable proportion of loss in the
   event of their being another liability insurance or any other
   person covering similar liability

Shylaja Iyengar, CIRM, BIMTECH                                9/6/2011
                                    Conditions
                                             60

9.       Cancellation Clause – 30 days cancellation notice by either insured or
         insurer-
          Company – pro-rata return of premium subject to minimum retention of
           percentage of premium for unexpired premium.
          Insured - Retention at short period subject to no claim. In case of claim, no
           refund would be allowed
10. Any disclaimer of liability by the Company, claim becomes time
    barred unless suit is filed within 12 months of such disclaimer
11. Any fraud / misstatement / nondisclosure, there will be no liability
    under the policy
12. Jurisdiction within India and Indian Courts
13. Policy dispute clause – regarding interpretation, subject to Indian
    Law. There are certain policy conditions which are related to specific
    Professional indemnity Insurance cover
Shylaja Iyengar, CIRM, BIMTECH                                                   9/6/2011
                                 Policy Extensions
                                        61




Shylaja Iyengar, CIRM, BIMTECH                       9/6/2011
       Policy may cover liability for the following risks at additional
                                 premium -
                                                 62


 1. Breach of warranty of authority committed in good faith
            May arise where an agent acting on behalf of the principal exceeds their
             authority whether express or implied
               E.g. Young v. Toynbee (1910) where, after solicitors were instructed by a
                client, the client became insane. The solicitors were unaware of this and
                entered an appearance to a writ and prepared a defence. When the insanity
                of the client became known, the claimant applied to set aside the
                proceedings, and said the solicitors should be responsible for all costs on the
                basis that they were acting without their client’s authority. The solicitors were
                held liable.
            The cover hinges upon the assumption that the agent acted in good faith in
             the belief that the appropriate authority was held.




Shylaja Iyengar, CIRM, BIMTECH                                                          9/6/2011
                                 2. Collateral Warranties
                                              63
2.
          One of the inherent problems with the construction industry is the chain of
           contracts that exists between the developer, the bankers, the main
           contractors, the designers, the sub-contractors etc. and the ultimate tenant
           or purchaser.
          The tenant or purchaser is likely to have a contract only with the developer
           and will therefore, have to rely on their ability to recover at common law
           against any other party(ies) in the chain if they should suffer financial loss
           through that party’s negligence, working through the chain of contractual
           obligations
          One solution to this problem has been the use of collateral warranties
           whereby the tenant / purchaser has a contractual right enabling them to
           access directly the recovery rights provided in the contract chain for financial
           loss.
          Insurers are usually prepared to provide cover for collateral warranties but
           not where this involves an indemnity of ‘fitness of purpose’
Shylaja Iyengar, CIRM, BIMTECH                                                      9/6/2011
                                 3.   Discovery Period
                                           64
3.
          In the event of a policy being allowed to lapse, the insurer’s may allow a
           period of about three months or more after the cancellation of the policy
           for the discovery of the claims, i.e. the claims which arise due to a
           negligent act which occurred during the period of insurance, but which
           do not come to light until after the policy has lapsed.
          The extension may not be available if the risk has been transferred to
           another insurer.




Shylaja Iyengar, CIRM, BIMTECH                                                9/6/2011
                                 Renewal Procedure
                                         65
       It is usual for insurers in this class of business to negotiate a
        new contract each year
       Prior to the renewal date a fresh proposal form (including a
        declaration regarding claims) is completed by the insured giving
        up-to-date details of the staff so that the premium may be
        calculated
       At renewal date an insured is also obliged to report (if they
        have not already done so) any occurrence likely to give rise to a
        claim
       This is particularly important information for the insurer and
        will influence their attitude towards renewal of this policy. The
        possibility of claims will be reflected in future premiums and
        the amount of the policy excess.
Shylaja Iyengar, CIRM, BIMTECH
           .                                                      9/6/2011
                                 Proposal form
                                      66




Shylaja Iyengar, CIRM, BIMTECH                   9/6/2011
                                 Proposal Form
                                       67

 Each category of insurance has a separate proposal form,
  questionnaire which would enable the insurer to decide
  acceptance as well as underwrite the business
 Each category of proposal forms are standardized (PSU’s) and
  have to be submitted duly filled in not only at the inception but
  also on renewals.
 Proposers profession should be described accurately and
  comprehensively. E.g. ‘engineer’ is too vague
 An insurer will want to know exactly the field in this the proposer
  operates and where their experience lies.



Shylaja Iyengar, CIRM, BIMTECH                                 9/6/2011
                                 Proposal form
                                        68

 The date when the business was established is useful
    information
       Well established firms are generally more attractive risks than new and
        unproven concerns
 More important is the experience of each of the individual
  partners.
 Proposals will be accepted only if the form submitted is duly
  signed preferably by a senior partner or director with the
  declaration that all statutory requirements pertaining to the
  profession have been complied with



Shylaja Iyengar, CIRM, BIMTECH                                           9/6/2011
                                 1. Details of each partner
                                             69

 Information required will cover the following –
 Professional qualifications -
       are of great importance and may mean the difference between the
        acceptance or declinature of the risk. The insurer has to be satisfied that
        the proposer is competent in the particular profession and best measure is
        the standard laid down by the relevant professional body in the form of
        examinations leading to the qualification
 Date obtained and age –
   Success in the examination is mainly academic. This question is asked to
    establish the extent of the actual professional experience since
    qualification. Now many professional bodies stipulate their members
    undertake a structured CPD (Continuing professional development)
    programme – mainly overseas

Shylaja Iyengar, CIRM, BIMTECH                                               9/6/2011
                                 Details of each partner
                                            70

 Period in practice as a partner
   This also helps the u/w to assess the proposer’s experience.        If the
    proposer has been a partner in another practice or been established in the
    present business for some time, they will have experience not only of the
    professional work but also of the running of a business
 Details of past partners
       must be provided where cover is required.




Shylaja Iyengar, CIRM, BIMTECH                                         9/6/2011
                                 2.   Total No. of staff
                                           71

 This information is necessary for rating purposes since
    the premium can be based, on the total number of staff




Shylaja Iyengar, CIRM, BIMTECH                             9/6/2011
                                 3.   Activities
                                         72

 Further information may be asked for along the following lines –
   List of largest five contracts undertaken in the past three years

   Details of largest three contracts expected to be undertaken in the
    forthcoming year
   Connections with other firms

   Membership of consortium or other group practice

   Description of activities and gross fees for each for last 3 years – specifying
    if any relate to the USA and Canada
   Description of any contracts where a partner / director has an interest and
    whether they have any control over decisions
   Income from largest clients

   Details where end product relates to overseas

   Standard contracts used – copy brochures etc.

Shylaja Iyengar, CIRM, BIMTECH                                               9/6/2011
                                 4.   Risk Management
                                          73

 Questions include –
   Does the proposer work to a professional code of practice?

   Does the proposer have written work instructions or checklists for
    the service provided?
   What does the proposer think are the most significant potential risks
    associated with their field of work?
   What does the proposer do to minimise these risks?

   How often does management revise working procedures to ensure
    their




Shylaja Iyengar, CIRM, BIMTECH                                     9/6/2011
                                 5.   Contract control
                                          74

 Questions include –
   What is the procedure undertaken prior to contracts being accepted
    to ensure that –
          The contract specifications can be met
          Customer requirements can be satisfied?

       What records are kept of -
         The original contract
         Subsequent amendments to that contract
         Verbal agreements
         Telephone conversations
       What steps does the proposer take to review work undertaken by staff
       Do recruitment procedures involve taking up references


Shylaja Iyengar, CIRM, BIMTECH                                            9/6/2011
                                 6.   Previous Insurance
                                           75

 Are you now or have you ever been insured against
    professional indemnity risks?
       The fact that the proposer has not previously been insured may influence
        the insurer, depending on how long the business has been established and
        how long it has been without cover
       Policy is issues on ‘claims made’ basis and may give a complete
        retrospective cover.
       The insurer will have to be satisfied that there are no grounds for
        suspecting that the cover is only being sought because of the possibility of
        claims being made for negligent acts occurring in the past.
       In some cases policy may be endorsed to exclude or restrict retroactive
        cover.


Shylaja Iyengar, CIRM, BIMTECH                                               9/6/2011
                            7.   Employees behaviour
                                       76

 Have you or your predecessors in business discharged or
    are you contemplating the discharge of any employee for
       Any negligent act, error or omission
       Any dishonest fraudulent criminal or malicious conduct?
 This is designed to disclose the possibility of a claim
    occurring from past activities of employees and
    predecessors in the business by virtue of the
    retrospective cover granted by the policy




Shylaja Iyengar, CIRM, BIMTECH                                    9/6/2011
                                 8.   Previous claims
                                          77

 Has any claim been made against the proposer or any director,
  partner or employee for negligence, error or omission relating to
  professional duties?
 Is the proposer aware of any neglect, error or omission or the
  existence of any circumstances which would give rise to a claim?
       One of the most important questions on the proposal form and is designed
        to bring out the fullest possible information about past claims experience
        and anything which may have a bearing on any future claims
       Isolated claims may be ignored unless of recent origin when the u/w may
        wish to exclude its consequences from the policy.
       A number of claims will put the insurer on enquiry and an investigation of
        causes will be made


Shylaja Iyengar, CIRM, BIMTECH                                             9/6/2011
                         Failure to disclose past claims
                                         78

 One of the greatest problems facing the professional liability u/w is failure to
    disclose past claims which could give rise to a claim is
   An insured may genuinely overlook past incidents or be convinced that they
    will not produce future claims.
   When risks are transferred from one insurer to another it is particularly
    important that all possible claims are reported
   An insured is in danger of having a gap in cover; their previous, lapsed policy
    cannot apply an incident reported to the current insurers and the current
    insurers may refuse to handle the claim if the incident is one which should
    have been reported to them at the inception of the risk
   Insurers may also ask what action has been taken to prevent a recurrence of
    the situation which gave rise to each claim or loss.



Shylaja Iyengar, CIRM, BIMTECH                                              9/6/2011
                                 9.   Optional Extensions
                                            79

 Do you wish to extend the policy to include –
   Breach of warranty

   Collateral warranties?

 Both are self-explanatory




Shylaja Iyengar, CIRM, BIMTECH                              9/6/2011
                                 Rating
                                   80




Shylaja Iyengar, CIRM, BIMTECH            9/6/2011
                                 Premium Calculation
                                          81

 Premiums for PI businesses are normally calculated by
    applying a rate to -
       The gross fees, the gross billings or to the amount of indemnity
       Plus a per capita charge for each person employed in the business
 The rate charged will vary between professions having
    regard to the insurers’ individual claims experience and
    their assessment of the claims potential in any given
    profession.




Shylaja Iyengar, CIRM, BIMTECH                                       9/6/2011
                                 Premium loading
                                          82

 Premium may be loaded because of other information revealed
  about the risk, for e.g.-
 More than one office
       Supervision of the business is an important premium consideration and
        where there is more than one office the risk may be increased w.r.t. the
        circumstances and with particular reference to systems for control,
        monitoring and communication between the different locations
 Claims experience
       Premium is influenced by past experience. Unsatisfactory claims experience
        may mean an increase in the basic premium with possibly other limitations,
        such as an increase in the amount of the policy excess
       Renewal may even have to be declined. In such an event the insured should be
        given absolute warning about time for them to place the risk elsewhere

Shylaja Iyengar, CIRM, BIMTECH                                               9/6/2011
                                 Premium loading
                                        83

 Age of the partners or exp. of the business
   An increased premium may be applied where the partners are
    young or where the business is only recently established
 Ratio of partners to staff
   Any loading will depending entirely on the insurers’ views of the risk
    as a whole and their judgement of an acceptable ratio between
    ‘supervisory’ and ‘other’ staff.




Shylaja Iyengar, CIRM, BIMTECH                                      9/6/2011
                            Any Questions?



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