Get to Know the Terms in Your Professional Indemnity Insurance Policy
A summary of common terms and their definitions relating to Professional Indemnity Insurance.
| Costs Inclusive Excess | The policyholder must pay the amount of the excess towards the legal and defence costs. |
| Costs Exclusive Excess | The policyholder does not pay any excess towards the legal and defence costs but only pays the amount of the excess towards a claim settlement. |
| Known Claims / Circumstance | The prior knowledge of a fact, situation or circumstance that a policyholder knew of before the policy period began; or in which a reasonable person in the insured’s professional position, would have thought might result in a claim being made against them. |
| Limit of Indemnity | The total liability of the insurer for compensation and claimants costs and expenses in respect to any one claim. This limit of indemnity, depending on the policy, may also include the policyholder’s defence costs. |
| Territorial Limitation | The limitation under the policy to provide cover for acts, errors and omissions committed in certain territories. Policies issued within Australia cover a minimum territorial limit of Australia and commonly extend to New Zealand as well. Many policies also provide Worldwide Territorial Cover excluding USA / Canada. |
| Jurisdiction Limitation | The policy will only cover claims brought within the court system of the nominated countries. |
| Period of Insurance | Relates to the period of cover (generally 12 month policy periods). Upon the expiration or termination of the contract, all liability ceases except for those claims and/or claim circumstances that were notified within the period of insurance to the insurer. |
| Professional Services | The description of the policyholder’s activities covered by the policy. This may also be termed as ‘Professional Business’, ‘Professional Services’ or ‘Business Activities’ depending on the terminology in the insurer’s policy. |
| Who is a Professional | A Professional is anyone who promotes themselves as a ‘professional or expert’ in their established discipline, and whom someone else relies on for the advice and/or services they provide. |
| Policyholder | The policy schedule should list all prior and current legal entities as a policyholder. The definition of policyholder commonly includes Principals (directors/partners) and employees. If you have changed company structure, it is important to maintain cover for the prior entities because if they are removed, they will no longer be afforded cover under the policy. |
| Policy Schedule | Outlines the terms and conditions of the insurance contract in conjunction with the applicable policy. |
| Policy Wording | It is important that you understand the extent of your policy coverage and your insurance requirements. Policy coverage is always subject to the terms, conditions and exclusions of the insurance contract and policy wording provided by the insurer. Each insurance company has its own policy wording. This means that coverage can vary considerably from one insurer to another. It is vital that you compare each policy based on the appropriateness of cover for your individual or business needs. |
| Reinstatement | In the event that the policy limit of indemnity is exhausted due to claim(s), the ‘reinstatement’ provision, if provided under the policy, reinstates the limit under the policy back to the full sum insured. It is an important benefit to have, as renegotiating or establishing further cover immediately after a claim(s) occurs can be extremely difficult. |
| Retroactive Date / Cover | Retroactive cover is limited to acts, errors or omissions arising from work performed by the insured on or after the retroactive date, which is usually “unlimited” or is a “specified date” that could be the inception date of the policy, date of commencement of the business, or other date as specified in the policy schedule. Note that the retroactive date may precede the inception date of the current policy. Claims arising from work done prior to the retroactive date are not covered. |
| Run off Cover | If a policyholder chooses to sell the business and/or retire, Run off Cover will indemnify the insured for any unknown claims that may arise from mistakes made whilst still in business and during the period of Run off Insurance (after the specified retroactive date and before the run off date). |
| Total Sum Insured | Any one event limit as well as an aggregate limit of damages in any one period of insurance. This may be extended by virtue of the automatic reinstatement clause. |
| Claim | A request for compensation received by the insured from a third party. This can be an originating process (in a legal proceeding or arbitration), cross claim, counter claim, third party or similar notice, or any written or verbal demand – depending upon the applicable policy definition. |
| Claims Made Policies | Claims Made policies provide cover for claims made or known; a fact, situation or circumstance (“known circumstances”) that you think could reasonably be expected to give rise to a claim against you during the period of insurance. They require all claims and any fact, situation or circumstance that is likely to result in a claim, to be notified to the insurer within the period of insurance. The actual mistake could occur at any time on or after the retroactive date, and the policyholder must not have had any prior knowledge of the fact, situation or circumstance before the period of insurance. |
| Continuity of Cover | “Continuous Insurance Cover” provides cover for claims arising out of a known circumstance. The benefits of a Continuous Cover Clause do not forgive their overriding legal duty of disclosure under Section 21 of the Insurance Contracts Act (the Act). However, they may provide the policyholder protection for innocent non-disclosure if they have maintained cover with the same insurer with no interruptions since the known circumstance arose. |
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