FREQUENTLY ASKED QUESTIONS

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.

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.

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

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.

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:

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.

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.

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

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.

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.

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’.

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

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.

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

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.

You need Public & Products Liability insurance to cover you in the event that you should become legally liable for any Personal Injury and/or Property Damage, that is sustained by any third party, which arises from your business operations.

The term ‘Personal Injury’ can include, but is not limited to:

• bodily injury, death, disease, disability, shock, fright and mental anguish.
• false arrest, false imprisonment, wrongful detention, malicious prosecution or humiliation.
• wrongful entry or wrongful eviction.
• libel, slander or defamation of character or invasion of the right to privacy.
• assault and battery not committed by you or at your direction, unless committed for the purpose of preventing or eliminating danger to persons and/or property.

The term ‘Property Damage’ refers to:

• physical loss, destruction of or damage to tangible property, including the loss of use of such property at any time resulting therefrom; and
• loss of use of other tangible property which has not been physically lost, destroyed or damaged; provided that such loss of use is caused by or arises from physical loss, destruction of or damage to other tangible property.

Under a Public & Products Liability insurance policy the insurer agrees to cover you for any amounts which you become legally liable to pay as damages or compensation in respect of any Personal Injury and/or Property Damage, happening during the Period of Insurance within the Territorial Limits, that is caused by or arises out of an Occurrence in connection with your business operations.  

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.

Public & Products Liability insurance policies operate on an ‘Occurrence’ basis.

This means that the policy will only cover your legal liability to pay damages or compensation in the event that Personal Injury and/or Property Damage:

• happens during the Period of Insurance, and
• is caused by or arises out of an ‘Occurrence’.

The term ‘Occurrence’ normally refers to:

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 Public & Products Liability insurance Claims better than you.

Your industry or 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.

Under a Public & Products Liability insurance policy the Limits of Liability operate as follows:

Public Liability cover:

The Limit of Liability applies in respect of any one claim or series of claims arising out of any one Occurrence.

Products Liability cover:

The Limit of Liability applies in respect of any one claim or series of claims arising out of any one Occurrence and in the aggregate in respect of all claims during any one Period of Insurance.

Because the Limit of Liability applicable to the Products Liability insurance cover is an aggregate limit, this means that the limit will either be reduced or totally exhausted (as the case may be) by the payment of any claims during the Period of Insurance.

Claims or suits originating outside the United States of America or Canada:

Under a Public & Products Liability insurance policy Defence Costs are payable by the insurer in addition to the Limits of Liability; provided that the claim or suit originates outside of the United States of America or Canada or any of their territories or protectorates.

This means that the Limits of Liability will only apply to your legal liability to pay damages or compensation.

Claims or suits originating in the United States of America or Canada:

Where the claim or suit originates in the United States of America or Canada or any of their territories or protectorates, then the Limits of Liability will apply inclusive of the payment of Defence Costs.

This means that the Limits of Liability may be reduced or totally exhausted (as the case may be) by the payment of Defence Costs.

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.

What is ‘Run-Off ’ Cover? 

The purpose of Public & Products Liability 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, in respect of Personal Injury and/or Property Damage that is sustained by any third party after you have closed or sold your business, that results from any Occurrence that occurred prior to the date that you closed or sold your business.

Why would you need  ‘Run-Off’ Cover? 

‘Run-Off’ cover is necessary because Public & Products Liability insurance policies operate on an ‘Occurrence’ basis.

This means that the policy will only cover you for your legal liability to pay damages or compensation to any third party in respect of Personal Injury and/or Property Damage that happens during the Period of Insurance, within the Territorial Limits, that is caused by or arises from an Occurrence in connection with your business operations.   

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, in respect of Personal Injury and/or Property Damage that also happens after the expiry date of the policy - albeit that the Occurrence (that resulted in the Personal Injury and/or Property Damage) 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 industry or 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

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.

A Company and its directors, officers and senior managers need Management Liability insurance because they face both corporate and personal liabilities which can arise from Claims made against them by numerous stakeholders, including but not limited to:

• Employees.  
• Shareholders.
• Creditors.
• Competitors.
• Regulators (such as ASIC and the ACCC).
• Customers.
• Liquidators /Administrators.

When a breach of company law or regulation occurs or is alleged to have occurred, the focus is on your conduct or alleged conduct as a director, officer, senior manager and as a Company. Even where a Claim appears to be completely baseless or without merit, it will still cost you time and money to successfully defend the Claim. 

These exposures associated with managing a business are vast and numerous. The majority (if not all) companies insure against their legal liability in respect of personal injury and property damage, however the key economic exposure of the ‘management risk’ often remains uninsured.

A Management Liability insurance policy covers the directors, officers, senior managers and the Company in relation to exposures associated with managing a company. 

The  main areas of cover in a Management Liability insurance policy, include but are not limited to:

Directors & Officers Liability Cover

This covers any Insured Person for any Claim alleging a Wrongful Act by any Insured Person and in respect of which Claim the Insured Person is not indemnified by the Company.

Company Reimbursement Cover

This covers the Company for any Claim alleging a Wrongful Act by any Insured Person and in respect of which Claim the Company is permitted or required by law to indemnify the Insured Person.

Company (Entity) Cover

This covers the Company for any Claim against the Company alleging Wrongful Acts.

Employment Practices Liability Cover

This covers the Insured Persons and/or the Company for any Claim against the Insured Persons and/or the Company alleging any Employment Practices Breach.

Superannuation Trustees Liability Cover

This covers the Trustees of a staff superannuation fund for any Claim against the Trustees alleging any Trustee Responsibility Breach.

Crime Cover

This covers the Company for, among other things, any direct financial loss sustained by the Company as a result of the theft of Money, Securities and other tangible property by any of its Employees.

The definition of ‘Company’ can vary from insurer to insurer. But basically speaking the term ‘Company’ refers to:

"The Company stated in the Policy Schedule and any of its Subsidiaries."

The definition of ‘Insured Person’ can vary from insurer to insurer. But basically speaking the term ‘Insured Person’ refers to:

A Management Liability insurance policy may, among other things, include the following extensions of cover:-

• Advancement of Defence Costs and Investigation Costs.
• Continuous Cover.
• Crisis Containment Cover. 
• Emergency Defence Costs and Investigation Costs.
• Official Investigations and Inquiries.
• Occupational, Health & Safety Defence Costs and Investigation Costs.
• Pollution Defence Costs and Investigation Costs.
• Public Relations Costs and Expenses.
• Outside Directorships.
• Newly Created or Acquired Subsidiaries.
• Run-Off Cover for Subsidiaries.
• Extended Reporting Period.
• Extending Reporting Period (for Retired Insured Persons).
• Pecuniary Penalties.
• Statutory Liability.

Management Liability 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.

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:

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.

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.

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

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.

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

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.

The Limit of Liability is an aggregate limit that applies to all Claims made against the Insured Persons and/or the Company 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 the Insured Persons and/or the Company during the Period of Insurance.

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.