Professional Indemnity FAQ

Glossary of Terms

APRA: the Australian Prudential Regulatory Authority.

Circumstance notification clause: where an insured notifies the insurer of circumstances (during the period the policy is in force) that might give rise to a claim against the insured.
Following the introduction of the ICA, the failure to include a notification provision would result in one being imposed by subsection 40(3) anyway (see also ‘deeming clause’).

‘Claims made’ policies: a type of liability insurance policy in which the trigger of coverage is not the occurrence of a loss, but the making of a claim in respect of that loss by a third party, upon the insured. This means that an insurer indemnifies the insured against claims made during a policy year, notwithstanding that the negligent act, error or omission may have
occurred before the policy came into force and the actual claim might be made after the policy expires. (see ‘Long tail’ claims).

‘Claims made and notified’ policies: a type of claims made liability insurance in which notification during the period of cover is required under a circumstance notification requirement in the operative clause so that cover under the policy only arises for claims made upon the insured and notified to the insurer during the term of the cover. (see also ‘circumstance notification’ clause).

Conditions: the rules that the parties to the contract agree to follow in relation to the operation of the contract.

Deeming clause: a clause any claim which is subsequently made arising out of those circumstances is deemed to have been made at the time of the notification or during the policy period.

IBNR: the acronym for the insurer’s estimate of its liability for ‘incurred but not reported’ claims. IBNR’s are theoretically better controlled under the professional indemnity claims made and notified policy format that under the occurrence–based insurance policy.

Liability insurance: a policy indemnifying an insured for civil liability exposures from third party claims of loss. Exposures are often ‘long tail’ whilst liability insurance policies can be in a ‘claims made’/‘claims made and notified’ format (eg. professional indemnity, product liability, Directors and Officers insurance) or an occurrence-based format (eg. public liability).

Long tail: the description given to the nature of the risk in respect of an unknown number of claims which might be made many years after the actual occurrence that gives rise to the claim.

Occurrence-based insurance: common to certain types of liability insurance (eg. public liability) and property insurance policies where the trigger for liability is an insured event or occurrence that occurs during the period of the policy irrespective of when a claim is ultimately made.

Operative Clause: Sets out in very broad terms the cover provided by the policy. This cover is then narrowed subsequently be the exclusions (also known as an ‘insuring clause’).

Professional indemnity insurance: a liability insurance policy that indemnifies the insured for civil liability cover for members of a profession arising from the conduct of insured’s professional business practice. (usually written as a ‘claims made and notified’ policy).

Retroactive date: refers to the earliest date on which an event could occur that would attach coverage of an insurance policy before a claim will be covered under the policy 

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We are already seeing Insurance policies now placing exclusion endorsements into their policies excluding and claims relating to illegal cladding. We are seeing Governments demanding Audits of all existing buildings above a certain height. There are accusations of Builders taking other short cuts such as on Wiring, Pipes and sprinkler systems. 

The question is, who is to blame? Who will take responsibility?

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