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Is your professional indemnity policy worth the paper it's written on?

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Something very unsettling has happened to professional indemnity insurance recently, particularly those policies written for architects. It has become too cheap. There is huge overcapacity in the market, and a lot of insurers have been buying business by offering large discounts to new customers. This would normally be something to celebrate but this time it is not. Whereas once upon a time insurers tended to be rather flexible when a claim was submitted, now a lot of them are looking very carefully at whether or not the insured individual or company has been completely upfront about their potential liabilities. Sadly, many of them have not.

The main difference between professional indemnity insurance and most other policies, of course, is that an insurer can be liable for a claim which refers to work carried out by the insured company many years ago, at a time when that business was quite possibly insured by another company. Any new clients is of course asked whether or not there are any grounds to assume that claims may possibly result from past works, and many of them reply in the negative. However, did the fact that a client, several years ago, stated that he or she was not completely happy with some work constitute a claim? Should the fact that a previous employee was dismissed because of incompetence be a large hint that claims about that person's work may well surface? These and other similar questions have been tested in courts and the decision has not always gone in the architect's way. When insurers are making thumping great profits year after year they may be inclined to consider that a client's goodwill is worth more than the amount they would have to pay out in settling a grey area claim, but when they are losing money hand over fist they may take a more jaundiced view of such matters and dispute their liability.

We live in litigious times in which many people who would once never have dreamed of making a claim against a professional person are encouraged by press reports and aggressive lawyers to submit even the most dubious claims, in the sure and certain knowledge that there is a very good chance that the business they are claiming against will cave in and pay up rather than go to the expense and bad publicity associated with litigation. There has never been a time when it is more important for professional individuals and companies such as architects to make sure that their insurance cover is 100% in order. Sadly, discounting and the pursuit of ever lower premiums is putting that ideal in considerable jeopardy.

Copyright the UK Health and Safety Executive, 2009 (only kidding, honestly).