Or can he? He vaguely recalls something about the "claims made" principle of his PI insurance. Two round eyes open in the dark. The light goes on …
There is widespread ignorance among consultants and their clients as to the nature of claims made insurance. This is not entirely surprising. Let's face it, insurance topics don't make good party small talk. Most people give insurance as little thought as they believe they can get away with.
The issue is this: almost every type of insurance in the UK other than PI insurance is written on an "occurrence" basis. Take, for example, car insurance. If you have a car accident today that, perhaps due to the late development of a physical injury, does not give rise to a claim against you until 2006, the relevant policy will be the one in force on the day of the accident – today. You know exactly where you stand with your scope of cover.
PI policies, however, are claims made. The relevant policy is the one applicable when the claim is made, irrespective of when the negligent act or breach of contract occurred.
Let's say John signs his contract of appointment in 2003, having dutifully checked that it falls within his PI cover (assuming his insurers will give him such confirmation). He makes an error in his work in 2004 that breaches the contract. The damage comes to light in 2006, whereupon a claim is made against him and he notifies his insurers. Under the claims made system, it is the 2006 policy that will respond to the claim, not the one in operation on the date he signed his contract, nor the one when he made his fatal error. If the consultant's cover is restricted in any way between his signing the "approved" appointment and the date of the claim, then he could find that he does not have any cover.
The claims made issue is particularly pertinent at the moment, as many insurers are limiting their scope of cover. This is a "hard" market. Well publicised examples include restrictions relating to pollution (where an aggregate cap is becoming increasingly common), terrorism, asbestos and, more recently, toxic mould. But even where a claim is covered, the wording of the contract is being subjected to ever closer scrutiny by insurers.
Don’t scale a crane at Tower Bridge to protest the ‘claims made’ basis of PI policies – there’s little chance of change
Don't waste your energy scaling a crane at Tower Bridge to protest the claims made basis of PI policies, because there's little chance of change. And, of course, providers of annually renewable insurance must be able to change their policy conditions when the need arises.
So, is there anything our sleepless consultant can do, besides counting sheep and having a stiff hot toddy? Certainly, it is worth him considering whether his insurer is a reputable one that has been in the business long term. Is it inclined to change the scope of policy at the drop of a hat? He might like to ask about new exclusions and limitations to the policy introduced over the past few years.
The consultant should also think twice about twisting the arm of his PI insurer to obtain some kinds of cover. A less-than-reputable insurer might be persuaded to extend cover to particularly onerous clauses in, say, a tenant warranty relating to defects in the property. In doing this, they will be calculating that, a couple of years down the line, when the project is finished and the tenant is in place, cover on the warranty may be very much more restricted.
Clients' lawyers should particularly note that obtaining the best deal for their client today could turn out to be counterproductive in the long term. In extreme cases, onerous terms that run to the very heart of a contract can run the risk of taking the whole contract outside the consultant's cover.
Melinda Parisotti is a barrister at Wren Managers, which manages a professional indemnity mutual for architects.