In this article, we tackle common questions that are raised by consultants regarding “who” is covered by their professional indemnity (PI) policy.

1. What is a legal entity that can be named on a PI policy?

One of the most important pieces of information on a PI policy is the insured name. A PI policy will only cover the “legal entity” specified in the schedule.

A legal entity includes a sole trader (i.e., an individual) and a company. Whilst a business name or trust can be named on a policy, neither is a legal entity even if they have an ABN. If you operate under a trust, then it is important to list the trustee which will either be an individual or a company.

For example, the below names would constitute a legal entity:

1. BW Pty Ltd as trustee for the Black and White Architecture Trust.
2. BW Pty Ltd trading as Black and White Architecture.
3. Jane Black trading as Jane Black Architecture.

The below names would not constitute a legal entity:

1. The Black and White Architecture Trust.
2. The Black and White Architecture Trust trading as Black and White Architecture.
3. Jane Black Architecture.

As we discuss below, it is also possible for one policy to cover multiple entities that are related to each other.

2. Can one PI policy cover multiple entities?

Your PI policy can cover multiple entities that you use to perform professional services (provided of course that the entity’s services fall within the “insured profession”). It is essential that you advise your insurer of all companies and entities that you use. Such entities will then be named in your policy schedule.

Every time you enter into an agreement it is essential that you check that the entity name in the contract matches one of the insured entities named on your PI insurance policy schedule.

3. What if I offer different services under different business names – do I need separate PI insurance policies?

If your insurer agrees, your PI policy can name numerous legal entities that offer different services, provided of course all services are noted for the “insured profession”. For example, an insured might offer both architectural and interior design services under different entities. Both entities can be listed on the same professional indemnity insurance schedule. Insurers may agree to this if the two professions are quite similar, but if engaging in very different activities then you may need to take out different policies.

4. My client has requested I name them on the policy. Should I?

We often see clauses in consultancy agreements requiring a consultant to “name” their client as an insured on their PI policy.

PI insurance is intended to only cover the insured party’s duty to pay loss due to a breach of the insured’s professional duty (up to a specified amount). It is not intended to cover the client’s duty to pay loss due to a breach of the client’s professional duty. Therefore, insurers will usually not agree to name the client on your policy.

When undertaking reviews for consultants, we suggest that they delete such a requirement. If your client insists on you naming them on your PI policy you will need to speak to your insurance broker to see if it is possible to obtain additional coverage.

5. What if I engage a staff member under contract or secondment? Will they be covered by my PI policy?

Your PI policy will typically cover “employees”. It usually includes any trainee, volunteer, casual, permanent, seasonal, temporary and work experience personnel. Depending on your policy, it may also include a person who is seconded to your practice.

That said, policy wordings do differ and it is important that you consider the definitions of “insured” and “employee” in your policy as to who is covered, as such definitions will vary between policies. For example, one policy may cover independent contractors whereas another policy may not.

6. Proximity

Professional indemnity insurance policies generally include a “proximity” exclusion. Essentially this means that the policy does not cover claims by an insured entity against another entity that is listed on the same PI policy. Therefore, if you have multiple entities named on your policy, and they provide services to one another, it is important you discuss any proximity exclusion with your insurance broker.

Further, the proximity exclusion might also exclude a claim made against the insured by a company or trust which is operated or controlled by the insured. For example, if an insured company that provides consultancy services also owns a property development company, the PI policy generally won’t respond to a claim made by the consulting company against the property development company due to the proximity exclusion.

As we have previously mentioned, policy wording varies amongst insurers, so it is essential to read your policy carefully.

If you have questions regarding who is covered by your PI policy schedule it is important that you speak to your insurance broker.

Lisa Wastell-Anthony
Risk Manager

Disclaimer

This article is only general advice in respect of risk management. It is not tailored to your individual needs or those of your business, nor is it intended to be relied upon as legal or insurance advice. For such assistance you should approach your legal and/or insurance advisors.