What Exclusions do Professional Indemnity Policies have?
What Exclusions do Professional Indemnity Policies have? You see, many people think that their professional indemnity policy will cover all of their liabilities. A word of warning, it won’t because all policies contain exclusions. Furthermore, on average professional indemnity policies contain about 20 standard exclusions. To help understand these exclusions, we have broken them down into categories.
Key Professional Indemnity Exclusions
Prior Reported or Known Circumstances
Here, we are talking about circumstances that lead to a claim that the business owner knew about before purchasing the policy.
Claims arising before the retroactive date, which is specified in the policy schedule. Normally, the retroactive date is set at the date you first purchased professional indemnity insurance.
Fines and Penalties
Typically, a professional indemnity policy will exclude any fines or penalties. This includes penalties (civil and criminal), punitive, aggravated or exemplary damages.
Assumed and Proportionate Liability
In 2001, Proportionate liability legislation was introduced in every State and Territory in Australia. The purpose of proportionate liability is to reduce your liability to what it would be at law. When it comes to a claim, it makes sense that you should only be liable for the loss that your business is to blame for. This is fair and reasonable, right? Well, unfortunately a business might assume 100% of liability under a contract. This might even be where you are not even to blame for the claim. Therefore, it’s important to understand that your professional indemnity will exclude this assumed liability. Generally, your policy will exclude a claim where the contract liability is different to what would have applied at law. This exclusion under a pi policy is commonly referred to as a ‘contractual liability’ or an ‘assumed liability’ exclusion. To get more information on proportionate liability, readThe Fold Legal’s blog about using insurance to make contract terms fairer
Refund of Professional Fees and Trading Debts
Commonly, pi policies will exclude claim relating to refunding professional fees. Likewise, a pi policy will also exclude claims arising from a liability to pay trade debts or the repayment of any loan.
Unlike public liability policies, pi insurance policies have an exclusion for claims made by parties insured under the same policy. This is known as either a “related parties” or “insured vs insured” exclusion. Most importantly, this means that if you name another party on your professional indemnity policy, it won’t respond to a claim if it’s made by that party.
Dishonest or Wilful Acts
A pi policy will exclude claims caused by dishonest, fraudulent or criminal acts.
Commonly, an exclusion will apply to claims arising from any legal proceeding brought in any court of the United States of America.
Risks Covered Under Separate Policies
To avoid confusion, professional indemnity insurers exclude claims that should be covered under separate policies. As a result, you will find exclusions for Directors and Officers Liability, Employment Liability (including Workers’ Compensation), Products Liability and Pollution Liability.
Standard Exclusions that apply to all Business Insurance Policies
All business insurance policies have standard exclusions, relating to Radioactive Contamination, Insolvency, Terrorism, War, Asbestos. Also, claims that would be in contravention of any Trade or Economic Sanctions.
Specific Exclusions for Certain Occupations
For many professions, an insurer would apply exclusions specific to that industry. For example, if you’re a Management Consultant, it is common for insurers to exclude claims relating to investment advice, business valuations or capital raising.
In conclusion, not all professional indemnity insurance policies are the same. Therefore, when comparing policies, don’t just focus on the cost. Our advice, check the Exclusions that apply to your quote. To find out what is and more importantly what isn’t covered under the pi insurance policies, simply go to FD Beck’s online professional indemnity online calculator
For over 100 years, FD Beck has protected Australians. Rest assured we have the knowledge and expertise to handle every aspect of your insurance needs. For the past 20 years Simon has enjoyed a career in the Insurance industry as both a broker and underwriter. Prior to being a director at FD Beck Simon had a successful 8‐year management career with one of the worlds largest general insurers, which saw him deal with and structure insurance programs for some of Australia’s largest insurance purchasers.