Comments Off on The risk an engineer takes on without Run-off PI Cover.
Are you in the process of closing or selling your engineering business? Or perhaps you’re not working as an engineer for a period of time? Don’t make the mistake of cancelling your Professional Indemnity (PI) Insurance without the appropriate Run-off PI Insurance cover to protect against future claims.
Without it, there is no financial protection against damages or legal expenses should a new claim surface.
How does Professional Indemnity Insurance work?
Professional Indemnity Insurance is a claims made insurance policy. This means that for any insurance ‘claims made’, it is the current policy at the time of claim notification that responds to protect you, regardless of when the alleged error or omission event occurred. For example, an error made could have occurred five years ago, but only came to light this year. It is the current PI insurance policy in place at the time of claim notification that protects you.
The nature of a PI policy means that you must have a policy in place at the time you become aware of a claim, or else there is no insurance protection against this exposure.
What happens if I cease working as an engineer? Am I still exposed to claims?
After you cease working as an engineer, there is still a high possibility of receiving claims for damages as a result of an error or omission in your past work. Further, contracts often stipulate that engineering contractors must hold PI Insurance for seven years after completion of works.
The moment you cancel your PI policy, or let it lapse at expiry, you can be exposed without cover for any new claims alleging a breach in professional duty. You may also be in breach of a legal contract.
Example
An engineer provided advice on a building’s foundation design five years ago, but it was only on April 1st this year when a claim came through alleging this advice led to a collapsed pylon and significant structural damage. The PI policy in place at the time the engineer is notified of the potential claim (April 1st), is the one that responds to protect them.
However, if the engineer cancelled their PI Insurance, or let the policy lapse at expiry on March 25th when they stopped working, there is no insurance protection in place when notified of this claim on April 1st. This is the case, EVEN though the claim relates to advice provided five years ago when they did have PI cover in place.
Without a current PI Insurance policy, there is clearly an ongoing financial and legal risk exposure when you cease providing professional engineering services. However, it is unrealistic to be expected to retain PI Insurance for eternity. This is where Run-off PI cover can manage the risk.
What is run-off cover, and how does it protect me against the risk of future claims?
Run-off cover usually comes in the form of a PI policy, but with an added policy clause that excludes any new work after the policy cancellation date, business sale or closure date. Therefore, it will protect you for past works only.
Depending on the insurer, run-off cover can be purchased for multiple years, or renewed on an annual basis over a number of years. At the very least, the length of cover should be governed by the statute of limitations period.
I have closed my business and have opted against run-off cover, what could happen?
Potential costs:
No cover for legal defence costs Regardless of whether you are at fault or joined to a Claim as one of multiple defendants, you still need to defend yourself. Legal defence costs can fast amount to tens of thousands of dollars.
Damages payable If you are found to be at fault for loss or damage incurred by a third party as a result of your error or omission, you could be required to pay significant damages to those affected. Depending on the claim, this can reach into hundreds of thousands of dollars, if not more.
Without run-off cover, you could be left to incur these expenses on your own, potentially exposing your business and/or personal assets to significant loss.
EngInsure are here to support you, providing quality insurance advice and solutions to address your unique risk exposures.
For guidance on PI insurance specific to your circumstances, please get in touch with one of our specialists:
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.
Comments Off on The risks of cancelling Professional Indemnity cover
Cost pressures are mounting for countless businesses during this challenging economic period, thrust upon us by COVID-19. And while many company owners are looking to cut expenditure, or even cancel insurances as a result of winding up their business, it’s essential to understand the importance of maintaining Professional Indemnity (PI) Insurance. Cancelling PI Insurance could end up costing you far more in the long run…
Source: Some information in this article has been adapted from a piece published by LMI Group: Click here.
What does Professional Indemnity Insurance cover?
Professional Indemnity Insurance is designed to provide you and your engineering firm with financial protection against claims alleging loss as a result of your professional advice or service.
Any company or individual that provides professional advice or services can be held liable for financial loss that occurs as a result of an error or oversight in carrying out their work.
Professional Indemnity Insurance acts to insulate you against this financial exposure, even extending to cover your legal expenses in the defence of a potential claim.
What is the risk if you cancel your Professional Indemnity cover, or let it lapse at expiry?
By cancelling a PI policy mid-term or letting it lapse at expiry, you are exposing your engineering business and your personal assets to significant losses if you receive a potential claim for a breach of professional duty.
Additionally, many contracts require the contractor to hold PI insurance for 7 yearsafter completion of the work, so in cancelling cover, you could also be breaching a legal contract.
PI insurance is a ‘claims made’ insurance policy – what does this mean for you?
A claims made insurance policy works on the basis that your current policy responds to any claim first made to the insurer during the current policy period, regardless of when the alleged wrongful act, error or omission took place.
A “claims-made” PI policy covers youretrospectively for all past engineering work performed after the retroactive date set out in the policy, however to be protected, you must have a current policy should a claim for past work arise.
Example:
An engineer provided advice on a building’s foundation design 5 years ago, but it was only on April 1st when a claim came through alleging this advice led to a collapsed pylon and significant structural damage. ThePI policy in place at the time the engineer is notified of the potential claim (April 1st), is the one that responds to protect them.
However, if the engineer cancelled their PI Insurance, or let the policy lapse at expiry on March 25th, they would have no insurance protection in place when notified of this claim on April 1st. This is the case, EVEN though the claim relates to advice provided 5 years ago.
Without PI insurance protection at the time when you are notified of a claim (actual or alleged) you could be exposed to significant financial losses. Hence why it is essential to maintain coverage after completing work.
If you are closing your engineering firm and want to cancel your PI Insurance, what other protection is available for claims that come through after the cancellation date?
Speak to us about Run-off cover. Run-off insurance is designed to protect you against potential claims that emerge from past business activities, alleging an error or omission in your advice/services.
Run-off cover normally comes in the form of the same PI policy but with an additional policy clause that excludes any new work after the cancellation date, lapse date or business closure date.
Depending on the insurer, “run-off” cover can be purchased in multiple years, or renewed with a gradually decreasing premium (until the minimum premium is reached), over a number of years. At the very least, the length of cover should be governed by the statute of limitations period relevant to your engineering discipline.
What expenses could you face without PI Insurance in a claim?
Regardless if a claim is actual or alleged, there could be devastating financial ramifications without current PI Insurance.
No cover for legal defence costs – Regardless of whether you are at fault, you still need to defend yourself. Legal defence costs can fast amount to tens of thousands of dollars.
Damages payable – if you are found to be at fault for the loss or damage incurred by a third party as a result of your error or omission, you could be required to pay significant damages to those affected. Depending on the claim, this can reach into hundreds of thousands of dollars, if not more.
Without PI Insurance, you would be left to incur these potential expenses on your own. Additionally, if your business is unable to afford these costs, or the original entity no longer exists, directors of the business can be sued personally, exposing personal assets and the possibility of bankruptcy.
What happens if you end your PI Insurance cover but continue providing professional services?
For many engineers providing professional advice and services, PI Insurance is a legal requirement, and often you are unable to deliver these services or enter into contracts without a valid certificate of currency. Without PI cover, it is likely you / your business must cease providing professional services of this nature.
If for some reason you do, or can continue working without PI cover, you would be financially and legally exposed to any claims alleging loss as a result of your professional service or advice.
From the date PI insurance is cancelled there is no cover protecting you for past, present or future work.
EngInsure are here to support you with important insurance advice throughout this challenging time and into the future. For guidance on achieving the most effective PI insurance cover outcomes for your situation, please get in touch with one of our specialists:
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.
Comments Off on COVID-19: Cyber Insurance more important than ever when working from home
Since the COVID-19 Pandemic hit Australia, cybercrime has increased dramatically. As more and more Australians work remotely, and rely heavily on digital platforms to interact and conduct business transactions, cyber criminals are taking advantage.
Understand how you can mitigate the risk of cybercrime, and minimise damage inflicted by a cyber-attack.
Why has the risk increased?
As more Australian’s work from home, and the use of remote access technology and video conferencing increases, cyber criminals are actively exploiting the situation.
Since the Coronavirus pandemic hit Australia in early March, there has been a significant increase in COVID-19 related malicious cyber activity. The Australian Competition and Consumer Commission’s “Scamwatch” has received over 100 reports of Coronavirus scams in the last three months, and the volumes continue to rise substantially.
CYFIRMA’s threat visibility and intelligence research also unveiled a 600% increase in cyber threat indicators related to the Coronavirus pandemic from February to early March.
Working from home creates further vulnerabilities where malicious actors “can gain additional access points to a network”, Fergus Hanson, the director of the Australian Strategic Policy Institute’s International Cyber Policy Centre stated (Sydney Morning Herald).
COVID-19 malicious threat examples:
Phishing emails – these aim to trick recipients into clicking links in emails that subsequently open up software in the background that scans their computer for vulnerabilities and downloads malware.
SMS scams– there are Coronavirus text messages circulating that purport to be from the Australian Government. These messages encourage people to click the link to access testing locations near them. If the link is clicked, the phone is redirected to a website where cyber criminals will download malware, or a computer virus onto the phone. In this particular scam the criminals attempt to steal banking credentials when the user logs-in, providing access to the user’s money.
For ongoing updates from the Australian Cyber Security Centre (ACSC) regarding COVID-19 and malicious cyber activity: click here.
Measures to mitigate the risk:
Australians must be vigilant about cyber threats. The ACSC stipulates that “good cyber security measures are the best way to address cyber threats”.
Review your business continuity plans and procedures.
Ensure your systems, including Virtual Private Networksand firewalls, are up to date with the most up-to-date security patches (see guidance for Windowsand Apple products).
Increase cyber security measures in anticipation of the higher demand on remote access technologies, and test them.
Educate and inform your staff and stakeholders on cyber security practices. Example: detecting socially-engineered messages, recognising a phishing email or SMS.
Ensure that staff working from home have physical security measures in place. This minimises the risk that information may be accessed, used, modified or removed from the premises without authorisation.
Other important resources from the Australian Cyber Security Centre:
Despite taking the above risk precautions, no IT security system is 100% secure, and even your most vigilant employees may make a judgement error. If your systems are breached in a cyber-attack, Cyber Insurance is essential to minimise what can be a devastating financial impact on your business.
Key benefits of Cyber Insurance:
Cyber Insurance can include cover for the following exposures.
Financial compensation to recoup costs of an IT security breach – including business interruption, IT recovery costs, ransom payments, forensic investigations etc.
Fines and penalties – payment of fines and penalties imposed by government or regulatory authorities. These can amount to $2.1 million.
Third party liability – compensation for clients / customers who suffer financially or emotionally as a result of a data privacy breach / data theft.
Notification costs – compensation to cover the costs of customer notification, and credit monitoring services for affected parties.
Legal defence costs – cover for costs associated with legal advice and representation in connection with formal investigations by authorities.
Reputational damage – cover for the cost of professional consultants to assist in repairing reputational damage to a company’s brand as a result of a cyber-attack.
There are a wide range of suitable covers available for both small-medium enterprises and large organisations.
EngInsure are here to support you with important insurance and risk guidance in this challenging time. To request a Cyber Insurance quote for your business, please get in touch with one of our specialists:
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.
Comments Off on Tackling the challenging PI Insurance market
Professional Indemnity (PI) Insurance has been a point of pain for a vast number of engineers over the last 12 -18 months, and continues to be so across the Australian market.
A significant rise in the quantity and severity of PI insurance claims, combined with the ‘cladding crisis’, and increased litigation have seen PI Insurance premiums rise substantially. As a result, cover is often provided subject to restrictive policy conditions, cover exclusions and high excesses.
For some engineers, particularly those in the construction sector, PI cover has become cost prohibitive to the point where some businesses cannot afford the necessary PI Insurance, affecting their ability to continue business operations.
To help you navigate these challenging PI Insurance market conditions, this article provides key information on why the hard insurance market is occurring, and what you can do to achieve the best possible outcome for your engineering business.
State of the PI market
PI Insurance is currently experiencing significant premium increases. Dependent on the nature and scope of activities performed, premium increases commencing at 20% are now common.
Restrictive PI policy conditions and coverage exclusions are being applied to many engineering occupations classed as ‘high risk’ by insurers.
PI Insurance is becoming harder to place across the market, with insurers declining to provide insurance quotes for occupations and business activities deemed as high risk.
The size of the PI insurance market is diminishing. We have seen the withdrawal of Insurer’s and capacity from the market due to the impact of poor loss ratios on profit performance.
Continuity of developments & projects are being threatened, particularly in the construction sector where PI cover is becoming unaffordable or unobtainable. PI insurance is mandatory for some professions and often a requirement under the terms of contract. The inability to access PI can halt works completely.
Various state regulators have intervened in some professions, allowing businesses to continue operating with certain cover exclusions.
A specialist PI Insurance broker can be instrumental in working to minimise price increases, while also negotiating the best possible policy terms and conditions for your PI Insurance.
PI Insurance market conditions & rate increases
Before we explain how to combat these insurance market conditions, it is important to provide some background on why insurance rates are increasing, and policy conditions are becoming more restrictive.
In general, Australian insurance markets are hardening. We are witnessing rate increases across the majority of PI Insurance policies, despite many falling into lower risk occupation categories.
Why are rates increasing?
Over a sustained period, PI insurance companies have experienced high loss ratios, putting upward pressure on insurance premiums, and invoking tighter policy conditions e.g. higher excesses, cover exclusions, and restrictions on the insurers’ risk appetite (i.e. risks they are able to cover).
What is a ‘high loss ratio’?
A high loss ratio occurs where an insurer’s claims payouts are a high proportion of the total funds in the insurer’s premium pool. This can present a problem, because a loss ratio that is too high, can subsequently put an insurance company into poor financial health.
If the insurer exhausts their premium pool with too many claims payments and not enough incoming premium to grow the total premium pool, they would be unable to pay insurance claims.
As an example, a confidential PwC report found that PI insurers for building certifiers and surveyors wrote $40m in premiums in one year, but one insurer alone faced cladding-based claims worth $50m. Evidently, this is not profitable, and puts substantial pressure on an insurer’s bottom line.
In response to high loss ratios, insurers may take the following measures:
Increase premium rates to bring loss ratios back into balance,
Acquire more capital from their re-insurer to top up the funds, and / or,
Place restrictions on the types of risks that can be underwritten. E.g. decline insurance on high risk occupations more likely to suffer a sizable loss i.e. fire engineers that could be held partially liable for damages in buildings with non-compliant cladding, or highly flammable building materials.
This scenario is currently occurring in Australian insurance markets, where international reinsurance companies that fund our insurers, are dictating higher rates back to Australian insurers. This ensures re-insurers can continue to keep premium pools in balance and continue to pay claims. The result however, is that Australian insurers have their hands tied, and are forced to pass on higher PI Insurance premiums, and greater cover restrictions to the end client.
In the current climate, engineers carrying out ‘high risk’ business activities e.g. fire engineers, building certifiers etc., or engineers with a poor claims history, can have high premiums and excesses imposed, or even be declined cover. As an engineering PI insurance specialist, this can significantly limit the number of insurance companies we are able to approach to place PI cover, making it increasingly difficult to obtain insurance for certain engineering occupations and/or business activities.
How can a specialist PI insurance broker assist?
a) Competitive Premiums
As a specialist PI insurance broker, EngInsure approach a number of different PI Insurance markets (insurers) when sourcing quotes.
A number of these markets can only be accessed through insurance brokers, therefore using a specialist broker such as EngInsure, can help ensure greater competition when it comes to the insurance premiums available. Our experience in this space means we can easily align your engineering risks with suitable and specialist insurance markets that can deliver the best result for you.
Note: Pending an engineer’s business activities, the specific risk appetite of some insurers may restrict their ability to provide underwriting terms. In some cases this will reduce the number of insurance quotes available to you.
b) Negotiating better policy conditions
Information is everything!
As an insurance broker, it is our job to represent you. We are continually negotiating with PI Insurance companies to reduce premiums where possible, and remove blanket or unfair excesses where they don’t apply.
To enable us to negotiate and achieve better PI Insurance policy conditions, detailed information is critical. Information gaps in a PI proposal form will see insurers assume the worst – loading premiums, and / or imposing restrictive policy conditions.
c) Risk Management
A sound Risk Management Plan can help illustrate to insurance companies that aside from insurance, a company has other protective measures in place designed to reduce the likelihood and impact of adverse events, helping minimise the probability of making a PI Insurance claim.
In summary
To ensure your engineering firm can achieve the best possible outcome when it comes to PI premiums and policy conditions, a specialist PI Insurance broker can be of great value.
A professional PI Insurance specialist will:
Provide advice on the type of information and reports required by the insurer, to achieve the best possible premium rates from the outset.
Know the best insurers to approach based on your specific engineering business activities and corresponding PI risk exposures.
Have access to PI Insurance markets not available to the general public (i.e. ‘broker only’ insurers and policy wordings).
Negotiate the best possible insurance policy conditions when it comes to imposed excesses and exclusions.
Negotiate the best premium for your firm’s specific risk exposures.
Provide personal advice and recommendations for your engineering firm on insurance placement, and any other issues that may arise throughout the policy period.
Manage any insurance claims on behalf of your engineering business, representing your case to the insurer, always seeking the largest settlement, or best outcome possible.
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.
Comments Off on Potential professional indemnity claim? Four steps to follow if your business receives a letter of demand.
If a third party believes you or your engineering firm are responsible for loss or damage through an alleged breach in your professional duty, and they decide to seek compensation, you will likely receive a letter of demand.
No matter how far-fetched a claim may appear, whether you believe it happened or not, it is not something to ignore. Renee Cassidy, EngInsure Claims Manager, explains…
What is a letter of demand (lod)?
“Also known as a solicitor letter, a letter of demand is a formal notice demanding that the person to whom the letter is addressed perform an alleged legal obligation such as rectifying some identified problem, paying a sum of money or acting on a contractual commitment.
Most demand letters will include a deadline for action, and are often used to prompt payment, avoiding expensive litigation.
A demand letter often contains a “threat” that if not adhered to, the next communication between the parties will be through a court of law in the form of formal legal action.”
(Source: Duhaime.org Legal Dictionary).
In essence, a LOD is a demand of payment for losses arising from an allegation involving the person or entity to whom the letter is addressed.
does it always come as a letter?
Not always. A LOD can come in many forms — e.g. an email, a phone call, a conversation in person, etc.
WHY might your engineering firm receive a lod?
Your engineering firm may receive a LOD if:
another party alleges your business is responsible for loss or damage as a result of a breach in professional duty, arising from an act, error or omission.
compensation is sought.
Society is becoming increasingly litigious, and the number of Professional Indemnity (PI) Insurance claims for losses as a result of an alleged breach in professional duty have grown significantly. Even if an alleged claim appears ridiculous or unfounded at first glance, a LOD is something that all engineers should take seriously.
If you fail to address the issue early, the case could end up in court, where legal expenses can very quickly escalate into tens of thousands of dollars — even if you are not at fault.
HOW CAN PI INSURANCE PROTECT YOUR BUSINESS?
PI Insurance is designed to protect you and your engineering firm against claims alleging negligence or a breach in professional duty arising from an act, error or omission in the performance of professional services.
STEPS TO TAKE IF YOUR BUSINESS RECEIVES A LOD:
To help ensure your PI insurance policy responds effectively if your engineering firm receives a LOD, we recommend following these four key steps:
1. Don’t ignore it.
Under no circumstances should you ignore a LOD. Disregarding even the most preposterous LOD could see your legal situation quickly escalate.
Over time, we have seen some interesting claims, and, yes, even the ones that are seemingly innocuous at first glance, have been awarded with damages.
An example:
Damages sought for sunken building foundations
The owners of a four-year-old car park building noticed cracking of concrete walls, floors and parts of concrete pillars crumbling off. A building surveyor deemed the building unsafe, and the car park could no longer be used.
The owners launched further investigation and found the foundations of the carpark were incorrectly designed for the soil type. As a result, the owners sent a LOD to the engineering firm who designed the foundations. The LOD sought $500,000 in damages for loss of profits as a result of the carpark being unsafe for use, as well as reparations for the cost to rectify the foundations and repair resultant damage.
The engineering firm felt it was not to blame, believing the company who performed the foundation works was responsible. As such, the engineering firm did not respond to the LOD.
Unfortunately, as the LOD was not addressed or reported to the PI insurer in the first instance, the case ended up going to court. Even though the engineering firm insisted its innocence in the matter, the courts found it liable based on its design and recommendations for the foundations.
The car park owners were subsequently awarded $500,000 in damages, which the engineering firm was required to pay — PLUS the associated legal expenses incurred by both parties.
Often, we find that people who receive a LOD sit tight hoping the claim will go away, but, generally, ignoring a LOD only acts to intensify the problem.
If the issue at hand is not dealt with, your engineering firm is likely to be issued with formal legal action, where the case may end up in court. As demonstrated in the example above, this can make the initial issue far more complicated and expensive.
If a case goes to court, there are a number of preventable consequences:
Legal costs: a court case will inevitably incur legal expenses and, should the judge rule against your firm’s case, you may also be required to pay the legal expenses of the third party.
Excessive damages awarded: damages awarded against your engineering firm in court could be far greater than if the case was settled out of court.
Mental angst: involvement in a court case can cause anxiety for business owners.
Reputational damage: court cases can sometimes bring unwanted publicity, potentially causing reputational damage to your brand.
Limited Insurance coverage: your PI insurer may not cover the damages and legal expenses in full, particularly if there is a delay in notifying the matter to the insurer. In the insurer’s eyes, the huge costs associated with a case being heard in court could have been significantly reduced if a LOD was dealt with when initially received. A suitable settlement for the demand could have been negotiated earlier, circumventing the need to go to court.
2. Notify the appropriate parties immediately.
PI insurance is a ‘claims made’ insurance policy, and, as such, we always recommend you inform your PI insurer and insurance broker as soon as you receive a LOD.
A ‘claims made’ policy is designed to respond at the time the insured becomes aware of a claim or potential claim. You must have PI Insurance in place on the date you become aware of a claim against you, and the insurance policy coverage is only triggered when you notify the insurer.
It is important to be prompt in notifying the PI insurer ‘on risk’ at the time you receive a LOD. Late claim or potential claim notification can have serious coverage consequences:
a) It can prejudice how the insurer treats a claim
Delayed notification may result in increased costs for the insurer to resolve the claim. As these could have been avoided through earlier notification, the insurer may reduce the settlement amount paid.
If an engineer fails to notify the insurer upon receipt of a LOD, and then changes PI insurers, the engineer won’t have PI Insurance cover to protect them. It is a PI policy condition that a claim be lodged in the same policy period that the insured is made aware of the claim.
Other benefits of early notification
a) The insurer will take the situation off your hands
Once your engineering business notifies your PI insurer or insurance broker, the insurer will typically take care of the whole issue from the start on your behalf. This removes the need for your direct involvement in the dispute.
The insurer will:
Review the LOD and advise on next steps to take.
If required, engage legal representation to protect your interests, and liaise with the other party and their legal team who are seeking damages.
b) You will have expert advice from the start
Your insurer will know the best way to settle the claim — i.e. whether it will be more beneficial to settle a claim out of court or not. They will be aware of win/loss trends in court for similar cases, and are in a position to make an informed decision on how to achieve the best and least costly outcome for the claim.
c) Settlement out of court
The PI insurer will likely seek to settle the claim as soon as possible to avoid formal court proceedings.
Early LOD notification to your PI insurer can also give the insurer the opportunity to look at alternative ways to resolve the LOD, or share the cost of the damages with another party.
d) Legal expenses covered by insurance
PI Insurance can cover your firm’s legal expenses associated with the claim for damages up to the limit defined in the policy.
TIP: Don’t be discouraged from reporting a potential claim to your insurance broker or PI insurer — it is to your benefit to report early, even if the claim doesn’t progress.
3. Do not respond to the letter personally, and do not admit liability.
Instead of responding to the LOD, you need to inform your PI insurer or broker. The insurer will determine whether there is any professional breach attached to the claim on your behalf. There in fact may be no legitimate claim, in which case they will work to have the matter dismissed. The insurer will respond to the LOD appropriately on your behalf.
You should never admit liability (fault) for the allegations associated with the LOD. This could leave you open to legal action for damages and prejudice the insurer’s position. It could be almost impossible to argue your case if guilt has already been admitted.
4. Do not pay the demand.
If your business receives a LOD, refer it to the insurer who will take control on your behalf. Paying the demand could be interpreted as an admission of guilt, leaving you vulnerable to further legal action.
To secure Professional Indemnity Insurance with the specialist guidance of an insurance adviser, and the support of a dedicated claims consultant when you need it, contact the EngInsure Insurance & Risk Services team on 1300 854 251 or visit us at www.enginsure.com.au.
For further advice regarding letters of demand and professional indemnity insurance, contact one of EngInsure’s professional indemnity specialists on 1300 854 251 or info@enginsure.com.au
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.
As the global Coronavirus (COVID-19) pandemic continues to evolve, we want to share with you some important information regarding the steps EngInsure are taking to minimise the risk of exposure to our staff, clients and the broader community.
EngInsure are continuing to closely monitor the developments of COVID-19 in our community to ensure we prioritise the health of our employees, clients, their families, and the Australian community as a whole.
With this in mind, we wish to inform you that from Thursday 26th March our team will be working primarily from home. This is an important development to ensure we can play our part in limiting the spread of COVID-19, adhering to the national goal of ‘flattening the curve’.
Rest assured that it will be business as usual, and we will be harnessing a number of technology platforms to ensure we provide a reliable, qualityservice during this period.
EngInsure remains dedicated to delivering insurance solutions, advice and claims management services that ensure the best outcome for you.
Frequently Asked Questions
Are your staff contactable?
Yes, all of our advisors will be contactable during normal business hours via phone or email (8.30am-5pm, Monday to Friday). All office phones will be redirected to mobile phones, therefore, please follow normal procedures and leave a message if the staff member is unable to take your call.
Can I call reception?
Yes, however if you are calling our main line, we ask that you please be patient. Our receptionist will not be able to transfer your call immediately, however will leave a message for the staff member to return your call as soon as possible, or pass on their number so you can contact them directly.
How will meetings be conducted?
In the interests of health and safety, we will only be conducting meetings via phone, and if preferred we can also accommodate face-to-face meetings via video conferencing. Please rest assured this is a temporary measure. We truly value our personal relationships with all of our clients, and will revert back to face-to-face meetings when it is deemed safe to do so by the Australian Government, and reputable health authorities.
Will you receive mail I send?
For the time being, our physical office will continue to receive mail, and all mail will be processed as usual. We ask that you do not attend our office under any circumstances. If you have physical documentation to send us, please send to:
Our commitment to service excellence in the delivery of insurance advice, solutions and claims management is unwavering. We are passionate about what we do and will go above and beyond to ensure your needs are looked after throughout this period.
Please contact us if you have any concerns or questions, our team are always here to help. For the latest insights on COVID-19 and insurance, please visit our blog.
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.
With Coronavirus (COVID-19) officially declared a Pandemic in March 2020, and the landscape changing almost hourly, there is an air of great unease across Australia. Aside from the significant impact Coronavirus is predicted to have on our health system, there are also implications for the economy and potentially your business.
The number one question we are being asked by clients at the moment is: “How will my business insurance coverage respond or be impacted as a result of COVID-19?”
We have sought to address concerns on Coronavirus and Business Insurance cover below, citing helpful information in a paper prepared by LMIGroup. To access the full paper: click here.
This article addresses:
Business interruption cover
Property insurance
Corporate travel insurance
Business interruption cover
Generally…
General Insurance is unlikely to provide protection against losses and business disruption associated with a pandemic such as Coronavirus.
Traditionally, business interruption policies were only designed to cover disruption associated with damage to an insured property.
Doesn’t Business Interruption cover also disruption as a result of infectious diseases?
Over time, many business interruption policies have been expanded to cover temporary closures due to a number of other risks, this includes infectious diseases like legionaries disease, or a measles outbreak. Ordinarily however, these outbreaks only affect small pockets e.g. a shopping centre, or one or two buildings. Some polices do provide coverage for an outbreak 50km from the business location, but MOST only cover outbreaks isolated to the insured premises.
The coverage in standard Business Pack Insurance policies and Industrial Special Risk policies are not designed to insure against disruption caused by an infectious disease outbreak in a different state or country.
What about a Pandemic?
The SARS (Severe Acute Respiratory Syndrome) outbreak in 2013, lead major insurers and reinsurers to conduct predictive modelling on the cost of business interruption claims in the event of a major pandemic e.g. The Spanish Flu, which caused between 40 to 100 million fatalities. Findings showed that the global pool of insurance funds would not be able to meet the cost of business interruption claims that occur in a pandemic. The insurance industry would simply collapse.
In response to these findings, most insurers and reinsurers added exclusions to insurance policies stating that ‘disruption from a number of highly effective diseases were not covered’. This clause excludes cover for any disease that is notifiable under the Quarantine Act 1908 (Cth), and the Biosecurity Act 2015 (Cth).
As of the end of January 2020, Coronavirus became a listed disease under the Biosecurity Act, and in March, a pandemic. Regrettably, this means there is essentially no insurance protection for disruptions to business arising from Coronavirus.
Property Insurance – tell us if your property becomes unoccupied
Amid the enforced, and devastating shut-down of businesses like gyms, restaurants, bars, salons, and retail etc., many properties could sit empty for a long period of time. For property owners, this may have implications for insurance cover.
Why? Insurance companies see unoccupied premises as posing a higher risk, due to the increased likelihood of break-ins, fire, vandalism and water damage. Under the Duty of Disclosure section of the Insurance Contracts Act (1984), if a property is left unoccupied over a certain period of time, it becomes the insured’s duty to disclose to the relevant insurer(s) anything that may increase or change the risk at the property – e.g. the property being unoccupied. If there is a failure to disclose, insurance claims lodged could potentially be declined.
GENERALLY…
Insurers provide full cover for 30 days of continued unoccupancy before they require being notified, at which point they typically apply additional terms and conditions to manage the risk. These days however, depending on the insurer, some policies can automatically allow 30,60,90 or even 100 days of complete cover. After this time the policy may still provide protection, but be limited to restricted events, while others completely exclude cover if the insurer has not been advised of this change in risk before the end of the policy period.
With many business premises forced to close temporarily during the COVID-19 pandemic, it is important to be aware of this fact, and notify your insurance broker and / or insurance company if this applies to you.
MANAGING RISK: WHAT TO DO IF YOUR BUSINESS PREMISES IS CLOSING TEMPORARILY?
Due to coronavirus restrictions, many businesses are having to temporarily close, and allow staff to sustain operations by working from home. If this is the case for you, there are a number of important things to consider when it comes to protecting your premises.
This information is likely to apply to most Corporate Travel Insurance policies. Please note, this is General Advice only. For advice specific to your travel policy, please speak to your Whitbread broker, or your travel insurer.
CURRENT TRAVEL ADVICE:
If you or your employees are currently overseas, return home immediately
Domestic travel booked from 19/3/2020 will likely not be covered for claims relating to COVID-19. Bookings already made should be covered (subject to the terms and conditions of the policy wording).
All travel up to 30 June 2020 should be postponed or cancelled and costs should be covered if arranged prior to the COVID-19 outbreak.
COSTS OF RETURNING HOME – CURTAILMENT COVER:
Following DFAT’s upgraded travel warning, corporate travel policyholders and employees travelling overseas should return home immediately. The expense of this should be covered under ‘Curtailment’ (subject to the terms and conditions of the policy wording) provided that you:
Did not choose to enter a country or region within a country after it was subject to a DFAT 4 warning
Did not commence the trip after 3 March 2020, when COVID-19 could no longer be considered ‘unforeseen’
Booked the trip prior to 4 March and did not travel to China, Japan, Iran and certain regions within South Korea and Italy.
It is advised that return travel should be booked before 23:59 on 22 March 2020 AEST, and to travel on the first available flight. Some travel insurance companies may be able to assist in organising these arrangements.
MEDICAL EXPENSES COVER:
It is almost certain you will not be covered for medical expenses relating to COVID-19 for trips that commenced from 13 March 2020.
With DFAT’s updated travel advice, overseas travel is highly restricted, however it is important to be aware that you will not be covered for medical expenses relating to COVID-19 if you or your employees choose to travel overseas and ignore official warnings about the risks of contracting and transmitting COVID-19.
You should be covered for medical expenses if you are already overseas. If you are currently overseas and departed prior to 13 March 2020, cover for medical expenses should be provided (subject to the terms and conditions of the policy wording).
CANCELLING TRAVEL ARRANGED PRIOR TO THE COVID-19 OUTBREAK:
Loss of Deposits (cancellation) may be covered, depending on when travel was booked. Loss of Deposits is determined by whether the COVID-19 risk could be foreseen at the time of booking. Travel booking dates likely to be considered when assessing claims for Loss of Deposits are:
Cancellation of travel booked before 30 January 2020 should be covered (except to Hubei province in China) – If you booked travel prior to 30 January (except to Hubei Province in China which was subject to a DFAT 4 travel warning from 24 January), and your travel arrangements have been directly affected due to circumstances beyond your control as a result of COVID-19 then cover should be provided for loss of deposits (subject to the terms and conditions of the policy wording).
Cancellation of travel booked between 31 January 2020 and 3 March 2020 may be covered (subject to the terms and conditions of the policy wording) – Cover depends on the extent of the COVID-19 outbreak in the country being visited at the time of booking and whether it can be considered unforeseen. Each claim will be considered based on the individual circumstances. Examples of key countries where the risk of COVID-19 may not be considered unforeseen for all or part of this period include;
China
Japan
Iran
South Korea
Certain regions in Italy
Cancellation of travel booked from 4 March 2020 is unlikely to be covered – From 4 March there is no cover for loss of deposits due to COVID-19 as it could no longer be considered an unforeseen event after that date (subject to the terms and conditions of the policy wording).
CLAIMS FOR LOSS OF DEPOSITS (CANCELLATION) IN RELATION TO COVID-19:
It is important to contact your travel provider first as it is a requirement that you take steps to minimise losses under most Corporate Travel Insurance policy wordings. Many travel providers are allowing travel arrangements to be postponed or cancelled without penalty and it is important to contact them as soon as possible to minimise non-refundable costs.
For example, Qantas and Jetstar have stated that travel credit is available until 31 March for travel booked up to 31 May 2020. Please visit the airline websites directly for accurate and up-to-date information.
STAY INFORMED
The global situation is changing rapidly.
Before travelling, check for and take the advice of any travel warnings from DFAT on and WHO
Speak to your insurance broker for advice specific to your insurance program.
Tips to manage the risk of COVID-19 in the workplace:
The WHO (World Health Organisation) recommends the following:
Practice social distancing – click here to view the Social Distancing Guide developed by the Australian Department of Health.
Make sure your workplace is clean and hygienic-
make soap and sanitiser readily available
Include signage to remind people in the workplace to wash their hands
Educate people on what good hygeine means – signs, emails.
Promote good respiratory hygiene
Ensure tissues are available for those who have a runny nose or couch, along with closed bins for safe disposal of tissues.
Consult national travel advice on Smartraveller before business trips – is it absolutely necessary?
Inform employees, contractors and customers that if Coronavirus starts spreading in your community, to stay home and self-isolate Even if it is a mild couch or low-grade fever.
Develop a crisis plan of what to do when someone becomes ill with a suspected case of COVID-19 at your workplace.
The WHO has extensive information on managing risk in the workplace – click here to view key recommendations. It is also important to stay up-to-date with Australian Government information: www.health.gov.au.
Now is the time to prepare. Precautions and planning can make a big difference in limiting the spread among the community. Action now will help protect your employees and your business.
Should you have any questions regarding your Business Insurance policy coverage, please contact your EngInsure risk adviser.
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.
Comments Off on Understanding PI insurance: How to stay covered
Professional indemnity (PI) insurance can keep you covered for past projects and well into the future, as long as you follow some key rules.
An engineer, in their daily work, sells themselves to their client as an expert. The client relies on the engineer to provide trusted professional advice and make decisions on their behalf to achieve outcomes for which the engineer is engaged. However, if the engineer makes an error or omission in their advice that leads to financial loss for the client, it could come back to haunt them.
Fortunately, professional indemnity (PI) insurance offers just that – indemnity for the professional who made the decisions. But it’s not like car insurance, where the accident happens on a particular day and the current insurance policy offers cover for the event.
Instead, PI insurance must be in place on the day a claim is made against an engineer, likely several years after a project has finished. This highlights a major difference between insurance types known as occurrence based policies and claims made.
Occurrence based policies
In the case of occurrence based policies, the wordings of the policies are designed to only cover events that occur during the policy period. Car insurance and home insurance are typically occurrence based, and an ‘event’ might be a crash or a fire.
The policy in place when the actual event occurs is the one triggered to respond to the claim. It doesn’t matter when the claim comes to light, or when the insurer is notified of the claim. It is the timing of the event that is important.
Claims made policies
Claims against engineers are most likely to occur several years after a project has been completed. Cracking occurs in the building. The cladding causes a fire hazard. A bridge pylon subsides, etc.
So where an occurrence based policy is triggered by an event, a claims made policy is instead triggered at the time the insured is made aware of a claim or potential claim. In the case of an engineer, it is not necessarily about when they performed the work, it is about the time at which they became aware of the claim.
“But with professional indemnity insurance, you need the insurance on the date the claim is made against you. You might have designed something and made a particular decision that causes a future failure, or you might have made an error or an omission that is not discovered for many years.
“The claim will always be for something you did in the past, rather than on that particular day. This is why you need the insurance to activate on the date the claim is made.”
One key element of PI Insurance that is vital to understand is the retroactive date. When you first take out a policy with an insurer, you are automatically issued with a retroactive date (the date you are covered from). Most insurers will make this the date the PI policy is first taken out; however some can offer an ‘unlimited date’.
If not unlimited, the retroactive date becomes even more important if you change insurers. You must always notify the new insurer of your existing retroactive date to ensure this date does not reset when you commence a new policy. Failure to do so could mean you lose your retroactive cover.
Claim or potential claim notification is key
As soon as an engineer becomes aware of a possible claim, even if it is a verbal discussion, it is imperative that the insurer is notified. This is especially important if you’ve ever changed PI insurers. We offer the below example:
You start trading on 30/6/2010.
Insurance Company A insures you from 30/6/2010 – 30/6/2016, making your retroactive date 30/6/2010.
Insurance Company B insures you from 30/6/2016 to current day. Note: your retroactive date is still 30/6/2010 (as long as your new insurer has been advised of this, and they should be!).
On 1/1/2015, a client advises you that you might have made an error on a project from 2012, but you do not advise your insurer, as it is verbal advice only.
On 1/1/2017, you receive a letter from a legal firm asking for damages for this alleged error.
Outcome: You have no cover as the claim needed to be reported to Insurance Company A during the 2014-2015 insurance year when you were initially informed. Insurance Company B would say that you needed to notify Insurance Company A, and Insurance Company A would say the policy has expired. The retroactive date is immaterial, as you were aware of a potential claim, but did not report it.
As long as relevant insurers are immediately notified of claims or potential claims, and new insurers are properly informed of retroactive dates, cover lasts as long as the policy is current. When the policy ends and premiums are no longer being paid, cover also ends – unless the engineer elects to have run-off cover.
What is run-off cover?
Several years ago, Schnabel spoke with an ex-client who had retired from engineering three years earlier. Sadly, this engineer found himself having to cut his retirement short, returning to work in order to fund a $60,000 damages claim against him. This claim came from a job he had completed five years earlier.
Schnabel had strongly recommended run-off cover to the client before his retirement, but the client had decided against it. Run-off cover would have provided protection for up to ten years after retirement, despite the fact that he was no longer paying a PI insurance premium.
Note: there is a charge for run-off cover, however compared to PI insurance, it comes at a significantly discounted rate. A key determinant in the cost of run-off cover is the length of time for which cover is required.
Run-off cover is an excellent idea for retiring engineers, or for those selling a business, to continue their cover while they are no longer trading.
“It stops pieces of work from the past coming back to haunt you,” Schnabel said.
“This type of policy is usually taken out for a number of years, often for seven or ten years, depending on your perceived risk of an error coming back to bite you.”
Policy wording for engineers
EngInsure has been advising engineers on policy wordings since the business was first launched. There are tailored PI policies for most industries and professions, so an engineer seeking insurance will naturally begin with a policy that applies to their situation. Policies can be further customised according to the individual’s risk profile.
“It’s important to look at exclusions and endorsements – what is covered and what is not,” Schnabel said.
“Some of these are negotiable and some are must-haves. An insurance broker can help clients interpret these exclusions and endorsements. It is our role to aid their understanding on the effect that each of these could have on their business, making tailored recommendations accordingly.
“It’s also important to understand that there’s little to stop anyone from suing you, even if it’s frivolous. Often, we receive PI claims that end up with zero dollars being paid to the claimant. However, to get to that zero-dollar agreement, we can see around $50,000 in legal defence costs paid by the insurer to lawyers. If you don’t have PI insurance, those legal defence costs, and any damages ordered payable, are all up to you.”
For further information about securing Professional Indemnity Insurance for you or your business, contact a member of the EngInsure Insurance & Risk Services team on 1300 854 251 or visit www.enginsure.com.au
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.
Comments Off on Premium Funding: Making your business insurance cover more affordable
When it comes to your engineering firm’s business insurance premium, it can often be an inconveniently large lump sum.
Premium Funding payment solutions can help to free up your company’s finances, enabling you to put them to more productive and immediate uses by investing in areas that directly impact the growth of your business.
What is Premium Funding?
Pay insurance premiums by the month
Premium Funding Programs are a flexible financial solution designed to enable engineering businesses to spread the cost of their insurance premium(s) over equal monthly installments of up to 12 months.
Removing the financial burden of a lump sum insurance payment can help to free up your cash flow so you can utilise money which would otherwise have been spent on insurance, to proceed with key investments essential to growing the business.
Premium Funding is “a form of finance that frees up money for other expenses or investments” in a business. (Insuranceandrisk.com.au).
THE BENEFITS OF PREMIUM FUNDING
Business Insurance is an absolute necessity, however the cost of insurance doesn’t need to restrict cash flow, or place limitations on what the business has set out to achieve.
Premium Funding payment solutions can be extremely beneficial for a number of reasons:
Low cost – A low–cost financing option with competitive fixed interest rates.
Tax Deductible – Generally speaking you can claim a deduction on interest expenses, however, you should speak to your accountant for confirmation of what applies to your individual circumstances.
Multiple Policies – You can pay for multiple policies on the same payment plan.
No Guarantor Required – It doesn’t require personal guarantees, or charges over business or assets.
HOW DOES IT WORK?
Your insurance broker will guide you through the simple process of arranging Premium Funding. Below we have provided a brief explanation on how it works:
Premium Funding providers offer flexible payment arrangements that evenly split the total premium due into a maximum of 12 instalments. The number of instalments you select is dependent on your needs and wants.
Once your payment plan has been finalised and approved, the premium funder will pay the entire premium due directly to the nominated insurer(s).
Going forward, the premium funder will deduct the agreed monthly payments from you, in accordance with the terms of the contract.
The application process is far simpler than a bank loan and requires fewer background checks and credit reports.
It’s also good to know that upon renewal of your insurance each year, you can easily rollover your existing Premium Funding contract, minimising the need to complete additional applications.
If you believe that Premium Funding would benefit you and the financial position of your engineering business, please contact your EngInsure Insurance Adviser.
This insight article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.
