Over 50 years ago, when RSA first started writing Professional Indemnity cover, professional occupations typically meant accountants, architects, surveyors, solicitors, engineers and the like. Since then, the business environment has evolved, with a proliferation of new service-based occupations accelerated by the digital era and the 2008 economic crisis which prompted the rise of the “gig economy”. Nowadays, professional occupations with less overt risks might include anything from IT contractors to counselling services, copywriters to graphic designers, letting agents to life coaches.
That’s why it’s important to highlight to customers in an ever-expanding range of service-based or advisory occupations that no matter how qualified, experienced, or thorough they may be, a small mistake or oversight can creep in and cause big problems. That might be something as simple as an error in measurement, losing a laptop that holds sensitive client data, or sharing a video on a company website that features a copyrighted soundtrack. But most claims we see typically involve the provision of advice or services that fall short of the client’s expectations or cause them to lose money.
That’s why PI insurance is designed to protect professionals who are the subject of a claim by a dissatisfied client (even if the allegations of wrongdoing are unfair or unfounded), by providing cover for legal costs and expenses incurred in their defence as well as any damages or costs that may be awarded. Defence costs alone can run into tens or hundreds of thousands of pounds – a bill which few, particularly the self-employed, could afford to foot.
The frequency and severity of PI claims typically rise during periods of economic volatility, such as that which we’re currently experiencing. That’s why RSA conducted a significant review of PI back in 2014 to establish a consistent appetite for PI risks, which enables us to write business in a sustainable manner across economic cycles. Of course, the proof of the value of PI cover is in the claims process: our dedicated Professional and Financial Risks Claims team provides expert advice, advocacy and strategic, practical solutions across the spectrum of traditional and emerging professions – from the robust defence of claims without merit to speedy, commercially-minded resolutions, with a focus on preserving professional integrity. Here are three case studies that illustrate our approach.
Case study: A construction dispute involving multiple parties
Our society is becoming increasingly litigious, and while a “blame culture” may be seen as fuelling unfair, exaggerated or fraudulent claims, you only have to look at the Grenfell tragedy to see why it’s vital to determine, for example, whether work carried out in the past meets more stringent modern standards.
Construction disputes often involve a number of parties, making resolution potentially complex and expensive. That is seldom improved by the involvement of an insured with a strong view that a claim should be defended, regardless of evidence to the contrary. That was the perfect storm we faced when dealing with a claim arising out of remedial works required to a castle in Ireland, which had been (badly) converted into a number of apartments.
The insured engineers were appointed as contract administrators, and it was alleged that they failed to plan and supervise the job, particularly in relation to temporary works which failed. Proceedings were issued against Company X, the insured and the contractors, seeking in excess of £1.3million. We had maintained a hard line but at mediation, further information came to light identifying a high exposure for our insured regarding the scope of their duties.
As one of the three parties being sued, Company X stated that if the matter did not settle at mediation, they would bring an action against the insured for the losses being claimed against them. Despite this, the insured wouldn't agree to anything more than a nominal contribution based on the earlier advice. They were reluctant to recognise the increased exposure of the claim and potential associated legal costs.
Based on the information gleaned through mediation, it was key to keep all lines of communications open to achieve settlement. In particular, we identified the need to get the insured on board with settlement discussions and we were aware that part of their concern was the level of the insured's contribution payable, which would be significantly lower in the event that the claim ultimately faced was a recovery action by Company X, rather than the original claimant. Identifying that payment of the higher excess would be prejudicial to the insured when the alternative claim would have attracted a much lower figure, we agreed with the Insured to restrict their contribution to a mid-point between the two.
Agreement on the excess cleared the way to the insured's buy-in to resolution. Although mediation was unsuccessful, discussions continued over the following weeks. Tactically, a hard line was maintained, and ultimately settlement was achieved, with the Insured's share of the claim restricted to 25% of the £600,000 costs settlement achieved. This represented an excellent outcome against the value of the claim and the Insured's exposure and, despite their earlier resistance to settlement, the insured expressed their appreciation for our support.
Case study: RSA Claims expertise mitigates claim costs
Universities provide a service that comes with expectations of a certain level of professionalism and specialist knowledge – even more so since the introduction of substantial tuition fees in the UK, which redefined students as customers of educational institutions. This has led to the adoption of a consumer mentality: if students feel that their experience isn’t living up to what was promised in the prospectus, any perceived failure to provide the educational service agreed, to the required standard, could be deemed a breach of contract.
Whether or not to seek costs against an unsuccessful claimant is a dilemma often faced by our Professional and Financial Risks Claims teams. In this case, the claimant was a PhD student who was making little progress, and the University – our policyholder – recommended that he switch to an MPhil – a pure research degree. The claimant chose not to follow this advice, which led to his visa being revoked and him becoming liable to his sponsor for reimbursing his fees.
The student blamed the University for his difficulties and raised proceedings, seeking over £200,000. Our Claims specialist and appointed panel solicitors were confident there was no merit in the claim and offered the student a walk-away deal. He refused, and the claim proceeded to a two-day trial. The costs of the trial were small in comparison to the claim and there were no prospects of early-stage resolution.
The judge confirmed that the claim failed on all bases, with the claimant unable to demonstrate misrepresentation, breach of contract or negligence. Additionally, even if the claimant had been able to demonstrate liability, he had failed to provide any evidence that he had suffered damage. In advance of the trial, we submitted a bill for costs of £32,000 and were awarded all except counsel fees of £1,500. The claimant was without means and unlikely to make any payment. The University was delighted by the outcome, which they consider will be helpful in deterring other ill-founded claims in future.
Case study: Helping our engineering customer to avoid bankruptcy
Our insured was engaged in civil and structural engineering on a large mixed-use development that included apartments, retail units, a hotel, cinema and basement car park. Following water ingress to the car park, significant remedial works were required and the contractor pursued a claim against the insured for this cost, together with a delay claim.
The claim exceeded the level of the insured's indemnity and early in the life of the claim, the contractor pursued an adjudication and obtained a declaration that the Insured negligently designed the basement slabs and failed to take into account the groundwater conditions.
Given the adverse finding in the adjudication and our own expert evidence, which concluded the loss significantly exceeded the limit of indemnity, the claimant was invited to settle on the basis they received the policy limit. They initially declined, considering bankrupting the insured and pursuing us under a Third Party Rights Action.
One option we considered was to pay over the limit of indemnity to the Insured in accordance with the Policy Terms and Conditions, leaving the claimants to pursue the Insured with an uncertain outcome given the proposed bankruptcy. As the policy was costs-exclusive, this option wasn’t in our best interests but strategically, we advised the claimant it was an option under consideration. The certainty of a payment and finalisation of the matter encouraged the claimant to enter settlement negotiations with us.
The claimant accepted the settlement within the policy limit and this has enabled the insured to continue to trade and avoid almost certain bankruptcy.
While PI cover is not a legal requirement, many professional and industry bodies mandate that their members hold professional indemnity insurance, and large corporates typically make it a contractual requirement of undertaking work for them. However, your customers should make PI a priority if their business provides any advice or service that can be challenged or expose them to claims of professional negligence, or if they handle commercially sensitive client data or intellectual property in the course of their work. What’s more, PI insurance can be a real asset to their business and reputation by demonstrating their professionalism and sense of responsibility to their clients.