FREQUENTLY ASKED QUESTIONS

Thank you for taking the time to find out more about Prof Cover. Below are answers to some common questions to assist you in your understanding of the Prof Cover products and services. In the case you can’t find what you are looking for in the information provided below, please feel free to contact one of our friendly and professional experts.

Professional Indemnity

Public Liability

Liability Management

Some common questions asked about Professional Indemnity insurance.

Who is a professional?

The term ‘professional’ is no longer restricted to the traditional professions such as: medical practitioners, lawyers and the clergy.

The term ‘professional’ now includes any person who provides advice and/or service of a skilful character according to an established discipline.

Some examples of persons who would be regarded as professionals include, but are not limited to: medical practitioners, lawyers, the clergy, accountants, engineers, advertising agents, insurance brokers, IT consultants, surveyors, architects and recruitment consultants.

Why do you need Professional Indemnity insurance?

A professional person, in holding himself or herself out as the possessor of expert knowledge and special skills not shared by the rest of the population, owes a duty to his or her clients to exercise that degree of care and skill which is to be expected of a person in that particular profession.

If the professional, in rendering his or her services, fails to exercise the required level of care and skill and this results in injury, damage or pure financial loss being sustained by a client, then, the professional may be sued by the client for damages or compensation.

The main purpose of Professional Indemnity insurance is to cover a professional in the event that the professional is pursued by a client or other third party who claims that they have suffered injury, damage or pure financial loss as a result of a breach of professional duty by the professional.

What protection will a Professional Indemnity policy provide?

Under a Professional Indemnity insurance policy the insurer agrees to cover you against any Claim for civil liability for damages or compensation, arising from a breach of professional duty owed in the conduct of your professional business, that is first made against you and notified to the insurer during the Period of Insurance.

With respect to any such claim, the insurer agrees to cover you for:

  • the payment of damages or compensation awarded against you.
  • claimant’s costs and expenses that are awarded against or recoverable from you.
  • defence costs incurred by you or on your behalf with the insurer’s prior written consent

Furthermore, a Professional Indemnity insurance policy will usually, among other things, include the following extensions of cover:-

  • unintentional Defamation.
  • Continuous Cover.
  • unintentional infringement of Intellectual Property Rights.
  • unintentional Breach of Confidentiality.
  • Dishonest, Fraudulent, Malicious or Criminal (Innocent Party Cover).
  • Official Investigations and Inquiries.
  • Loss of Documents.
  • unintentional breaches of the Competition and Consumer Act 2010 (Cth).
  • Automatic Reinstatement of the Limit of Liability

What is a Claims Made and Notified Policy?

Professional Indemnity insurance policies operate on a Claims Made and Notified basis. 

This means that the policy covers you for Claims made against you and notified to the insurer during the Period of Insurance.

In other words, the policy that is in force at the time the Claim is made against you deals with the Claim.

However, the policy will not provide cover in respect of:

  • Claims arising from any act, error or omission that was committed or alleged to have been committed by you prior to the Retroactive Date-Link;
  • Claims made against you after the expiry of the Period of Insurance, even though the event that gives rise to the Claim may have occurred during the Period of Insurance;
  • Claims notified or arising out of facts or circumstances notified (or which ought reasonably to have been notified) by you under any previous policy;
  • Claims made, threatened or intimated against you prior to the Inception Date-Link of the Period of Insurance;
  • facts or circumstances of which you first became aware prior to the Inception Date-Link of the Period of Insurance, and which you knew or ought reasonably to have known had the potential to give rise to a Claim under the policy; and
  • Claims arising out of facts or circumstances that you have notified to your insurer on the Proposal Form for the current Period of Insurance or any previous proposal form.

What should you do in the event that you become aware of a fact or circumstance, during the Period of Insurance, that has the potential to give rise to a Claim being made against you?

In the event that you become aware, during the Period of Insurance, of any fact or circumstance that has the potential to give rise to a Claim being made against you, it is essential that you advise the insurer of the fact or circumstance as soon as reasonably practicable but, in any event, prior to the expiry of the Period of Insurance

s 40(3) of the Insurance Contracts Act 1984 (Cth) states that:

Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of insurance cover provided by the contract. 

Therefore, if you become aware of any fact or circumstance, during the Period of Insurance, that might give rise to a Claim against you, and you notify the insurer of the fact or circumstance prior to the expiry of the Period of Insurance, then the insurer will not be able to deny any Claim that arises from such fact or circumstance solely on the grounds that the Claim is made against you after the expiry of the Period of Insurance.

In the context of Professional Indemnity insurance, a fact or circumstance would be any fact, situation or circumstance that a reasonable person in your professional position would have thought might give rise to someone making a Claim against them in respect of a liability that might be covered under the policy.

What should you do if you want to change Professional Indemnity insurer?

If you should decide to arrange your insurance with another insurer upon expiry of the Period of Insurance, it is essential that you notify your existing insurer of any fact or circumstance, that might give rise to a Claim being made against you, prior to the expiry of the Period of Insurance

If you fail to do this, and a Claim is made against you after the expiry of the Period of Insurance, which arises from any fact or circumstance that you did not notify to the previous insurer, then you may find that you are uninsured in respect of that Claim. 

Your previous insurer may deny the Claim because you failed to notify the previous insurer of the fact or circumstance prior to the expiry of the Period of Insurance (i.e., in accordance with your statutory right under s 40(3) of the Insurance Contracts Act 1984 (Cth)). 

Furthermore, your new insurer may argue that the Claim arose from a ‘known’ fact or circumstance that you should have disclosed to the new insurer prior to effecting the insurance with the new insurer.

What is the Inception Date?

The Inception Date is the date when the Period of Insurance commences.

What is a Retroactive Date?

The Policy Schedule will include either an ‘Unlimited Retroactive Date’ or a ‘Specified Retroactive Date’.

  • Where the Policy Schedule includes an ‘Unlimited Retroactive Date’ (or without limitation of date) cover is provided for any Claim made against you during the Period of Insurance regardless of when the act, error or omission occurred; provided that you were not already aware, prior to the Inception Date-Link of the Period of Insurance, of any fact or circumstance that had the potential to give rise to a Claim against you.
  • Where the Policy Schedule includes a ‘Specified Retroactive Date’, cover is only provided for any Claim made against you during the Period of Insurance arising from any act, error or omission that occurs on or after the Retroactive Date.

    The ‘Specified Retroactive Date’ can either be the same as the Inception Date-Link of the Period of Insurance or an earlier date. This will vary on a case-by-case basis.

How much cover should you purchase?

Professional Indemnity insurance Claims can be expensive, therefore we always recommend that you buy as much cover as you can reasonably afford. 

No two businesses are the same and there is no single amount of cover that would meet the needs and requirements of all businesses. Nobody knows your business and the exposure it faces to Professional Indemnity insurance Claims better than you.

Your profession, the type of work you perform, the size of the contracts you undertake, as well as the makeup of your client base that you provide services to, are just some of the factors that may influence your decision on how much cover you need to purchase. 

Furthermore, the contracts that you have entered into with your clients may actually stipulate minimum amounts of cover that you are required to purchase.

We recommend that you should obtain optional Premium quotations based on varying Limits of Liability. You can then determine the amount of cover that you can afford.

How does the Limit of Liability apply?

The Limit of Liability is an aggregate limit that applies to all Claims made against you and notified to the insurer during the Period of Insurance.

Being an aggregate limit, the Limit of Liability will either be reduced or totally exhausted (as the case may be) by the payment of any Claims that are made against you during the Period of Insurance.

The Limit of Liability will operate on either a ‘Costs Exclusive basis’ or a ‘Costs Inclusive basis’.

  • Where the Limit of Liability operates on a ‘Costs Exclusive basis’ this means that  Defence Costs, that are incurred in the investigation, defence or settlement of any Claims, are payable in addition to the Limit of Liability. In other words, the Limit of Liability will not be reduced by the payment of Defence Costs.
  • Where the Limit of Liability operates on a ‘Costs Inclusive basis’ this means that the Limit of Liability is inclusive of any Defence Costs that are incurred in the investigation, defence or settlement of any Claims. In other words, the amount of the Limit of Liability will be reduced by the payment of Defence Costs.  

A Limit of Liability that operates on a ‘Costs Exclusive basis’ is preferable to a Limit of Liability that operates on a ‘Costs Inclusive basis’.

Which factors influence how the Premium is Calculated?

The main factors which influence the calculation of Premium include but are not limited to:

  • the type of industry that you are involved in.
  • the professional services provided by your business. 
  • whether you undertake any work overseas (meaning outside Australia or New Zealand).
  • the amount of the Limit of Liability that you select to insure for.
  • the amount of your Estimated Annual Gross Fee Income.
  • the amount of Gross Fee Income earned from your largest client.
  • your Claims History.
  • the amount of the Excess that will apply to each Claim made under the policy.
  • the total number of staff that you employ and their experience and qualifications.
  • the amount of risk allocated to retroactive liability on work carried on since the commencement of your business

What is the difference between Jurisdictional and Territorial Limits?

The two terms are sometimes confused with one another.

‘Territorial Limits’ refers to the place where the act, error, omission or conduct (that gives rise to the Claim being made against you) occurs.

‘Jurisdiction Limits’ refers to the fact that the policy will only cover you for Claims that are brought against you within the court system of the nominated countries. If the ‘Jurisdictional Limits’ are restricted to certain nominated countries, then the policy will only cover Claims brought against you in those countries.

Run-Off Cover

What is ‘Run-Off ’ Cover? 

The purpose of Professional Indemnity insurance ‘Run-Off’ cover is to insure you against any Claims that are first made against you after you have closed or sold your business. 

You will need to be covered for any possible future Claims that could be made against you after you have closed or sold your business, that may result from a breach of professional duty committed or alleged to have been committed by you in the conduct of your Professional Business prior to the date that you closed or sold your business.

Why would you need  ‘Run-Off’ Cover? 

‘Run-Off’ cover is necessary because Professional Indemnity insurance policies operate on a Claims Made and Notified basis. This means that the policy covers you for Claims made against you and notified to the insurer during the Period of Insurance. 

However, if after closing or selling your business you allow your policy to lapse and do not effect ‘Run-Off’ cover; then you will not be covered in respect of any Claim that is made against you after the expiry date of the policy - albeit that the act, error, omission or conduct that gave rise to the Claim actually occurred prior to you closing or selling your business and prior to the expiry date of the policy.

How many years should you maintain  ‘Run-Off’ Cover?

This is a very difficult question to answer. The period that you select may vary according to your particular profession and the longest Statute of Limitation period that may apply to any Claim that could be made against you during the ‘Run-Off’ cover period.

However, we would suggest that ‘Run-Off’ cover be maintained for a period of at least six years commencing from the date that you closed or sold your business. Request further advice

How do you find out more information about the cover provided?

For more information you should carefully read your Policy wording, the Policy Schedule, and any Endorsement(s) that are attached to the Policy wording issued by your insurer, which will set out the terms, conditions and exclusions of the cover that you have purchased.