Aligning contract terms with Professional Indemnity Insurance for better claim protection

Professional service contract terms and conditions and their consistency with professional practices and PI insurance can be one of the most important protections for a professional who is sued:

• Yet I only see a select few professionals with the foresight to have their terms annually reviewed.

• Even less appreciate how this can assist an informed PI broker at professional indemnity insurance renewal to achieve a positive message to an underwriter.

It doesn’t matter if you are an insurance broker, financial adviser, engineer, building surveyor, accountant or even lawyer you have got to stay on top of your terms and conditions.

This isn’t just the terms themselves but it means ensuring they are consistent with:

• your process and procedures
• professional indemnity insurance terms
• your professional activities
• website representations

Why? Every day I am looking at causes of action related to professional liability including:

• negligence; and
• breach of contract; and
• misleading and deceptive conduct etc; and
• amongst other claims;

and the majority of claims, again and again are against professionals from their clients. Whilst many of these are insured by PI, you can’t just assume that is a good thing. Claims on PI insurance can lead to substantial premium increases in many cases and also difficulties at renewal, reduced coverage as well.

And I am a realist, I appreciate this as an extra step and cost. However, it offers an advantage to differentiate your business to others to ensure at renewal that you are one of the few who is proactively mitigating professional liability risk in your business.

Be smart and find some time in your annual calendar, probably just prior to renewing your professional indemnity insurance to review your contract terms and conditions and even if you have had these reviewed by a general commercial lawyer - why don’t you consider a professional liability or commercial litigator peer review - they offer a unique perspective on how claims arise.

Here’s two tips as well:

1. Have a look at the scope in your contract, is the scope of your retainer set for each job and only as wide as it needs to be and consistent with your professional business description and services you provide?

2. Are the processes and procedures in your terms consistent with the actual processes and procedures in delivering services in your business whether in relation to engagement, payment or otherwise.

The total cost of professional liability risk can be managed by effective risk management and one simple place to start is your terms and conditions.

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Tagged as:

• professional liability