Professional Indemnity FAQ

Reinstatement or Aggregate Limit

 

Reinstatement or Aggregate Limit of Indemnity – is there a difference?

 

In a professional indemnity policy and indeed now some Management Liability covers you will see either a Reinstatement Clause or an aggregate limit of the limit of liability. 

 

Is there a difference? Yes there is and it is a trap that could catch you out!

 

If a policy contains a reinstatement clause then in the event of the Insured having more than one Claim in a period of insurance, the policy provides an automatic reinstatement of the limit of indemnity. This makes sure that if there is an exhaustion or partial exhaustion of the limit of indemnity, because of the notification of a claim during the period of insurance, the Insurer will reinstate the limit of indemnity for the period of insurance back to the full amount. Insurers will generally provide just one reinstatements but some policies may have two or three reinstatements. Some Accountant’s policies have unlimited reinstatements.

 

But how does this differ from an aggregate limit?

 

An aggregate limit can be double the amount of the limit of liability and can appear therefore to be one reinstatement, but in actual fact, you can have a multitude of reinstatements until the aggregate limit is exhausted. The limit of liability given is the maximum you can claim for any one matter. 

 

So as an example, if an Accountant has a $5,000,000 limit of liability with a $10,000,000 aggregate and he misinterprets a section of the Tax Act on 30 separate occasions over a period to his clients and as a result they all incur fines and additional costs as a result of the Accountants negligence, they would all be covered until the aggregate limit is exhausted of all the claims were under the limit of liability. The claims would all be for variable amounts but if they all averaged $250,000 with an aggregate limit, they would all be covered by insurance.

 

If on the other hand they had one reinstatement, one claim of $250,000 would see the sum insured return to the limit of liability of $5,000,000 but after that, the policy will only cover another 19 claims for $250,000 each. 10 claimants would miss out or need to be paid out directly by the Accountant because his sum insured was now exhausted.

 

If the Accountant had two reinstatements, only one more claimant would be covered and so on. Depending on your occupation, making the same mistake with many clients on separate occasions is possible. Some professions it would not be so easy but how the sum insured or limit of liability is set up could foreseeably count. Financial Planners, Insurance Brokers, OHS and Human Resource Consultants are other examples.

 

It is also just plain wrong to assume that with one reinstatement on a limit of liability, the aggregate of liability is automatically doubled, Technically yes if there are two claims for the maximum sum insured, but more often than not they will be smaller amounts and once one reinstatement has applied, it is certainly not the Aggregate is adjusted by the amount of the first claim, and you have in this example $9,750,000 left. It is potentially misleading to state both.

 

The other issue is some insurers show “Reinstatements” as an extension. Others show it in the Insuring Clause or the Conditions of the policy. I have even found the Reinstatement Clause in the Exclusions from one insurer. Make sure you know where it is and how it operates within the policy.

 

So make sure it is either clearly an aggregate amount or the required number of reinstatements are listed. 

Latest News

Three Years running - Insurance Brokerage of the Year 1 to 5 staff

Mandy and Robert Cooper were extremely honoured and astounded to once again win, Insurance Brokerage of the Year for 2020 from Insurance Business Australia magazine. This is the third year running.

While this year has not been the easiest of years for the business with Covid 19, the Recession, the hard market and issues at Lloyds of London, we are literally all in this together as an Insurance Industry.

CPR Insurance Services continues to make our clients the number one focus of our business while managing our relationships with Insurers, who we need more than ever in this market climate.

CPR Insurance Services are a highly ethical Brokerage with a reputation as a trusted advisor who always acts in the Client's best interests. Their experience, knowledge and expertise is amongst the highest in the industry.

CPR Insurance Services is now ten years old as a business and is proud of being an Authorised Representative of Ausure and their partnership with Steadfast, giving CPR the strength and backing to match it with any Broking firm in the Insurance Industry, but remain focussed on supporting the Small to Medium business segment.

Memberships of the National Insurance Brokers Association, Australia and New Zealand Institute of Insurance and Finance, Australian Insurance Law Association, Australian Professional Indemnity Group and the Australian Institute of Company Directors, ensures CPR Insurance Services maintains the high standard of knowledge and expertise required to be one of the best Brokerages in Australia.

CPR Insurance Services also plays a strong role in their local community supporting other Sporting Clubs and Community organisations. They also support and promote local businesses with their operation of the Kedron Brook Business Group who meet regularly and has 174 members.

We are truly honoured to receive this National award once again for the third year as a recognition of CPR Insurance Services contribution.

read more

Finalist for QLD Broker of the Year

Robert Cooper was honoured to be nominated as a finalist for Queensland Insurance Broker of the year for 2020, as part of the National Insurance Brokers Association. Unfortunately he missed out on the ultimate award but is a reflection of the high standard that the industry now has for such awards.

read more