Policy pointers — It’s tough for globetrotting firms to secure affordable professional indemnity insurance, but without it you could be exposed to crippling liabilities.
As firms continue to expand their operations internationally, there is an increased risk of their being dragged into expensive litigation in unfamiliar jurisdictions. A recent High Court case called Brit Syndicates vs Italaudit has highlighted the issues that can arise for international umbrella organisations, exposing their professional indemnity policies as lacking, and putting them at serious risk.
In future, insurance brokers will be scrutinising PI policies more closely. For international construction firms, or those considering operating in international territories, this scrutiny could have an impact on policies, and potentially push up costs.
The case of Brit Syndicates vs Italaudit illustrated the need to ensure that all of a firm’s overseas operations are insured under the same policy. Although this was the case for Italaudit, the quality of the wording was lacking, giving the insurers the opportunity to defend the claim, leaving the company exposed to potential huge costs without any form of insurance cover.
Although there’s no substitute for a good specialist broker to offer advice and navigate the complexities on your behalf, firms should make themselves aware of the liabilities they are likely to face in conducting international business and some of the most important factors to consider when purchasing the firm’s PI insurance.
What pitfalls or potential gaps in cover should your broker be aware of, and what can you do to ensure your firm’s PI cover remains adequate and value for money?
UK operations with a global exposure or potential for global exposure, should take out worldwide PI cover. But obtaining worldwide cover is not always easy. For example, recently an £18m turnover consultancy organisation specialising in civil engineering hydraulics worldwide found that its broker could not secure cover with no territorial or jurisdictional restrictions.
There’s less of an appetite among insurers for PI cover in higher risk territories – so the price goes up
The insurer was US based and that country’s foreign policy dictated the countries it considered permissible for cover. For a company which works on projects in 130 countries worldwide and does not discriminate against territories based on political activity (since water is not so restricted), this approach was unhelpful. By switching brokers the company was able to negotiated worldwide cover with no territorial and jurisdictional limits.
Worldwide cover is generally more expensive than UK or EU cover because:
- In general work overseas will be viewed as a higher risk by insurers, especially by those underwriters who don’t habitually cover it or understand the complexities of the risk.
- Costs associated with a claim abroad can be high, especially if the claim has been brought in a foreign jurisdiction and is therefore outside UK law.
- There’s less of an appetite among insurers for PI cover in higher risk territories – when there’s less demand, the price goes up. Source your PI from those insurers who do have an appetite and who have experience underwriting these policies such as the bigger construction Lloyd’s syndicates like QBE, Beazely and DA Constable. Look for a broker that works with these types of insurers.
- Insurance premium tax is payable by companies for work in some countries. The cost for this varies depending on the country and is added to the cost of your PI.
Your firm may operate in Russia, for example, and you will therefore need territorial cover for this region. However jurisdictional cover may not be necessary if you can negotiate a contract which allows UK jurisdiction. This means any case will be heard under UK law, and your PI premium will reflect this. Beware of brokers or insurers who try to foist jurisdictional cover onto you unnecessarily, but at the same time don’t sign up to contracts of US jurisdiction without ensuring your broker has widened the jurisdictional limits of your cover to worldwide.
Some territories will insist that firms working overseas buy cover local to that territory. If this is the case ensure that you also have an adequate UK policy as local policies only offer minimal cover. The UK policy will drop down to cover any excess claim over the local limit or wide of the local policy terms.
Where your premiums will see a serious hike is in taking the decision to work or open an office with local jurisdiction requirements in the US, Australia, or, rather surprisingly, Ireland. Exposure to these jurisdictions could increase your premiums by 25% or more depending on the nature of the work you do.
Andrew Bowyer is senior account executive at specialist construction PI broker Howden