When should a Retail Business that sells and supplies Products consider Professional Indemnity Insurance?

 Several key areas for business owners to consider when selling and supplying products:

·       A business that charges a separate fee for advice should have professional indemnity insurance covering their overall business or the area of their business that provides advice for a fee. As mentioned above, the liability insurance policies generally excludes advice for a fee, so in the event that there is no professional indemnity cover in place, claims arising from advice for a fee would be uninsured. For example: 

Why is it important to notify all Known Claims or Circumstances to your insurance company with in the current policy period?

A 'known circumstance' could be defined as any fact, situation or circumstance, which a  reasonable person in the insured’s professional position would have thought, might result in someone making a claim against him/her. Therefore if a claim arises after the inception date of the policy from a fact, situation or circumstance that the insured knew or should have known, at the time of the  commencement of the policy that might give rise to a claim, it would normally be excluded as it arose from a ‘known  circumstance’.  

By notifying all known claims and circumstances that might give rise to a claim, during a policy period, an insured can get the benefit of their statutory rights under Section 40(3) of the Insurance Contracts Act 1984 (the Act). Section 40(3) provides an insured with statutory rights to notify a circumstance or insured, to an insurer, during the currency of the policy. If a claim eventuates against an insured from the notified circumstances, then the insurer cannot deny indemnity, despite the fact that the claim arose outside the period of insurance. Therefore, any fact, situation or circumstance, which a reasonable person in the    insured's professional position would have thought might result in someone making a claim against them, should be notified to their current insurer. 

New Insurance Option Exclusively Available to CAFBA Members

Company directors are increasingly under the microscope from regulatory authorities (such as ASIC), shareholders, customers and other third parties in respect of their overall management of company affairs. ASIC has statutory power to pursue legal action for both criminal and civil breaches of the National Consumer Credit Protection Regulations 2010 with Statutory Fines and Penalties possibly being considerable.

Management Liability Insurance is specifically designed to provide protection for private companies and their directors and officers. It combines Directors’ & Officers’ Liability Insurance with several other policies, to provide a broad range of covers for company mis-management under the one policy, including:

• Directors & Officers Liability Insurance (protection for allegations of Company Mis-Management)

• Employment Practices Liability Insurance (claims from employees for Discrimination, Harassment etc)

• Fidelity Guarantee Insurance (Fraud)

• Statutory Liability Insurance (Civil Fines and Penalties)

• Defence Costs (Legal costs in defending claims)

• Official Investigation and Enquiries Costs (Regulatory bodies investigations)

• Occupational Health & Safety (legal defence costs for potential breaches of OH&S)

• Our existing customers will be receiving a quotation shortly and we invite all other CAFBA Members to contact us to obtain a quotation.

CAFBA - Professional Indemnity Insurance - Claim Notifications

A simple act, error or omission can be enough to trigger a complaint against you from a borrower or lender. If this escalates to a legal claim, the consequences can be serious. You could find yourself liable to pay compensation, costs and expenses. At the very least your firm may incur legal costs.

What to notify your PI Insurer

• Known Circumstances

A 'known circumstance' could be defined as any fact, situation or circumstance, which a reasonable person in the insured’s professional position would have thought, might result in someone making a claim against him/her.

• Claims 

A claim means any demand made by a third party upon the Insured for compensation, however conveyed,

including a writ, statement of claim, application or other legal or arbitral process.

• Withdrawal of Accreditation

Withdrawal of accreditation from a Financier (other than due to lack of business or withdrawal from the broker market)

• Breaches 

A breach in the financiers and/or company guidelines

• Customer Complaints

A customer complaint (even if thought to be resolved)

Third party fraud is the most common type of claims for Finance Brokers. Being an intermediary, if a third party has perpetrated fraud (be it a customer &/or a supplier), sometimes allegations can arise relating to the brokers conduct in the transaction(s) either by the lenders, customers and even regulatory authorities.

This is a guide only and is not an exhaustive list, if in doubt notify to ensure that you are afforded protection under your policy in the event that a formal claim should arise. When the policy period expires, no new notification of facts can be made on the expired policy even though the event giving rise to the claim against you may have occurred during the policy period. 

Professional Indemnity Insurance - Claims Examples

• Failure to clearly record serial number

  
  A finance broker failed to clearly record serial numbers in respect to the purchase of commercial machinery. As a result the lender was unable to repossess the machinery when the third party defaulted. The lender claimed against the finance broker for breach of professional duty. The claim was settled for over $100,000.
  
  

• Failure to keep records of telephone conversation

  
  A valuer alleged that he had advised a mortgage broker that the buildings located on the land purchased by the borrower might not belong to the land. The mortgage broker failed to pass these comments on to the lender. The mortgage broker confirmed that a conversation took place between the mortgage broker and valuer, but denied the valuers account. Solicitors reviewed the parties discovered documents and found that there was no written record by either the valuer or the mortgage broker of the said conversation. The final decision was based on the party that provided the more credible defence. The claim was settled for over $150,000.
  
  

• Failure to back up computer files

  
  After a partnership dissolved, one of the partners took the computer that contained all client files, and was required to provide copies of the files to the other partner. A virus developed on the mainframe and all computer files were lost including client files. A claim arose against our Finance Broker but there were no files that our legal team could use to defend the claim.

PI Risk Management Checklist

Following are some risk management measures when may help reduce the likelihood of a claim against you.

• Ensure that your business complies with the particular contractual requirements of your lender (if unsure of contractual obligations seek legal advice).

• Comply with the 100 point ID checks, while ensuring that all original documentation is sighted.

• Personally take copies of all original documentation; never accept copies of identification, bank statements, payslips, etc.

• Act as a witness only when the parties sign the documentation in your presence. Never witness pre-signed documentation.

• Check that the signatures on the contract match the signatures on the ID provided.

• Keep a record of all documents required for the loan transaction, including photocopies of correspondence from client.

•  Record a file note of all telephone conversations and meetings with clients.

• When dealing in plant and equipment finance loans, ensure that serial numbers of the plant and equipment are recorded correctly and are double checked. 

• Obtain security checks for all contractors, including obtaining a National Criminal History Record through your local state police department.

• Ensure that you do not represent to any person that a financier will give approval to any loan without first obtaining written authority to do so.

• Disclose any commission payable to you when required to do so.

• Ensure all information disclosed to you is kept confidential as required by law.

• Comply with all applicable laws, licences and relevant codes of conduct or practices applicable to you 

• Purchase and maintain Professional Indemnity Insurance in accordance with your financier’s contractual obligations.

• Maintain membership of your professional industry body or association, and an external dispute resolution scheme if required by your financier.

Disclaimer: 
Information provided by Vero Insurance Limited. While we have exercised due care and skill in preparing this information, Vero Insurance Ltd (ABN 48 005 297 807) (“Vero”) or Optimum Insurance Services (Optimum)  does not accept any legal responsibility or liability for negligence or otherwise to you or anyone else who seeks to rely on this information. This includes, without limitation, loss arising from a possible failure of the information to comply with statutory or regulatory requirements or the failure of the information to identify other risks or hazards beyond those considered in this document. Implementing this information is your responsibility and not the responsibility of Vero or Optimum, and you should obtain independent advice and make you own enquiries when considering your risk management strategies.

Not All Professional Indemnity Insurance Policies Are Created Equally

There are many different products available for Finance Brokers and a vast difference in policy coverage. To buy simply on price could prove to be a big mistake in the event a claim arises. The true value of any policy is determined by the broadest scope of policy cover to provide the best possible outcome in the event the unthinkable occurs.

Some Common Policy Exclusions in Other Products

• Dishonesty Exclusion in relation to ‘loss of money’ This condition I cannot believe is still on some insurers policies. If there is ever going to be a claim relating to dishonesty or employees, being an intermediary with in the finance industry,  in the event of perpetration of fraud the claim is most likely to relate to ‘loss of money’. Some policies try and rectify this condition by providing a sub-limit of cover for Fidelity (fraud cover) commonly less than $250,000 cover; it is just not adequate enough.

• Bodily Injury Exclusion You may think this should be a public liability exposure, but if a claim relates to your professional services and a third party alleges eg emotional distress or injury, this is a Professional Indemnity exposure. There is no cover under Public Liability Insurance for such claims; therefore this part of the claim may be excluded.

• Multiple Excesses Most policies will aggregate the excess in the event of a claim which arise the same act, error or omission. However, there are also some policies that apply the excess multiple times to a claim for every act, error or omission. This means that if there is more than one allegation of an act, error or omission, then the excess applies to each! (eg 5 allegations, excess applied 5 times)

• Loan Losses are excludes are some policies if lenders guidelines are followed – is there any other way to have a claim from a lender?

CAFBA Members Endorsed PI Policy has been specifically tailored for to provide adequate protection and there are no conditions or exclusions as highlighted above. 

Tips when looking for Travel Insurance:

•  Start looking for insurance early to ensure that you have adequate time to find the right policy.

•  Many insurance policies have age limits, commonly restricted to travellers under 70 or 75 years of age. However, there are number of insurers that specialise in Seniors Insurance including:

The Role of an Insurance Broker?

• Conduct a risk/needs analysis and advise our recommendations on the correct covered required to protect the individual or business’s assets and liabilities
  
  
• Recommend the appropriate insurer to match the risk

• Only recommend financially secure and stable insurers

• provide alternatives on your risk retentions through various excess options

• provide alternatives to pay premiums in monthly instalments

• prompt and timely serving of all requests to ensure that our clients are adequately informed of issues that may effect their individual / business needs

Claims Support

In the event of claim, we provide support when you need it most:

• provide you with support completing the claim from

• arrange a loss adjuster, if required

• submit the claim form to the insurer

• provide advice to ensure that you have received full entitlements