by Greg Hansen
Director Professional Risks, Austbrokers Countrywide

Ensuring you are covered by appropriate insurance as a consultant is a key aspect to best professional practice. This article explores why professional indemnity insurance is so important and how to ensure you are getting the best cover possible.

What is professional indemnity insurance and why is it important?

It is important for professionals to have the correct insurance and to engage in good risk-management strategies, especially when involved in marine surveying work.

Professional indemnity (PI) insurance is a vital risk transfer mechanism for marine surveyors who can be exposed to a high degree of risk due to the services provided and nature and size of projects that can be undertaken. In today’s highly litigious society, claims can be relatively common. Without a PI policy in place, surveyors risk their business assets – and possibly their personal assets – in the event of a claim. Even if it is ultimately determined that the surveyor was not responsible, payment of the legal costs associated with defending an allegation of negligence or similar is often the part of the insurance cover most appreciated by an insured business.

Why is PI insurance hard to buy and premiums have often been rising?

The insurance market is cyclical and in the last few years has been very difficult. In particular, for PI insurance with Insurers generally making losses. The marine surveying industry has an additional issue which can make the insurance purchase more of a challenge and that is due to the relatively small number of professional operating in this field. Insurance operates best when Insurers can leverage off a large number of risks and hence a large premium pool to cover claims. For example, there are thousands of architects and engineers which generate very large pools of premium for Insurers writing these professions as opposed to a relatively small pool of risk and premium in the marine surveying profession. Both issues (the poor profitability of PI insurance across the board) and the small numbers in the profession has made it difficult to attract Insurer offering reasonably priced insurance.

How to get the best results from your PI renewal

The first point of call for Austbrokers Countrywide is to tackle one of the issues raised above of an occupation with low numbers by using AIMS as a body to encourage members to combine together and bulk buy. Insurance works well with a large premiums pool to attract Insurers. By encouraging more Insurers interested in a larger premium pool we create the best ability to reduce insurance premiums. The second point is to use AIMS to promote risk management and improvement in standards across the profession.

The harder insurance market does look to be here for at least another 12 months so in addition to above it is important for surveyors to ensure they are preparing properly for their renewal and adhering to industry best practice. Practical suggestions that can help include:

• ·       Give the renewal process the attention it deserves.
• ·       Engage a broker with expertise and resources in your field to provide you with the best advice.
• ·       Complete the proposal form early and diligently. If the questions do not adequately portray your business activities, provide an explanatory addendum. A sub-standard submission may prejudice your practice, resulting in premium loadings, restrictive terms or even a declinature.
• ·       Pay particular attention to the risk management questions. If you are able to differentiate your practice from your peers and provide comfort to underwriters regarding your processes and procedures, you are more likely to achieve a favourable result. Include accreditations, CVs and procedure manuals if appropriate.
• ·       If any PI claims have been made against your practice, provide details regarding the steps taken to ensure there will not be a repetition of the circumstances which led to the claims.
• ·       In the hard market, underwriters are more particular about the risks they are prepared to write and negotiations are often lengthy and time consuming. Ensure you provide your broker with renewal documents well before your renewal date, as they may need to approach a number of insurers to achieve the required coverage and premium.

Case studies

Austbrokers Countrywide asked its panel of Insurers to provide some claims examples where professional negligence was alleged against the marine surveyor and a Professional Indemnity insurance policy responded to cover the claim:

I.            A vessel valuation by a marine surveyor of $900,000 was used by the owner to secure a loan. When the owner defaulted on the loan the bank seized the vessel and was only able to sell it for $290,000 so the bank sued the marine surveyor for performing a negligent valuation which they relied upon to secure the loan.

II.            The marine surveyor was appointed by a bank. The instructions provided to the surveyor were clear. They were to confirm the value of the vessel being built at a local yard and to certify to the bank when additional funds could be drawn down during the construction period. The bank confirmed that the surveyor was not required to monitor the standard or quality control of the ship’s construction nor its conformity with design. Defects were found in the ship after construction and the owners sued the ship builder, the surveyor attending to the quality control of the build and also the surveyor acting for the bank. Legal proceedings against all parties took two and a half years to conclude. A settlement of US$235,000 was reached at mediation with all parties contributing. Its important marine surveyors obtain clear instructions and/or to confirm in writing the exact services they are to provide. Unfortunately this does not always protect surveyors from legal action. This is an unfortunate example of where the cheapest option is for a surveyor to contribute to a settlement even though his instructions and responsibilities were clear from the very beginning.

III.            A surveyor in Canada was contracted to provide a load and stow survey for a barge of steel.

A week after the survey had been undertaken the barge sank and the cargo was lost. The surveyor was one of eight parties sued for CA$2.5 million. In the lawsuit it was alleged that the surveyor knew, or should have known, that the barge loading capacity was 6.8 metric tons but allowed 7 metric tons to be loaded. This was alleged to have caused or contributed to the sinking.

Although it was not clear that the surveyor had been negligent there was some risk that they could be found liable. The owner’s insurers agreed to settle the majority of the claim and the surveyor was asked to contribute CA$75,000 to the settlement pot.

IV.            An insured acted as a marine consultant, stowage and lashing planning advisor for the stowage of steel coils.

The marine consultant was appointed by a principal for whom they had worked with for many years and enjoyed a very good working relationship.

Due to their good relationship, upon only the verbal instruction of the principal, the marine consultant arranged and signed off on the stowage of the coils on an “athwartship” basis (at right angles to the centre line of the ship) as this form of stowage increased the cargo intake. It could be justified with additional lashing due to the way the hold was constructed.

The ship encountered very heavy seas and ultimately the stow collapsed resulting in a claim in excess of US$1.5m. The consultant was subsequently held responsible by the insurer of their principal, as part of a recovery action.

Unfortunately, there was no written confirmation of the instructions from the principal indicating they had agreed to an athwartship stow. There were however various other facts which were in the marine consultant’s favour to defend the case, including a limitation of liability clause in their terms and conditions.

The Insurer obtained independent third party advice to support the position for stowing the cargo athwartship. After five years of investigations and claims negotiations the Insurer managed to successfully defend the marine consultant, making a modest claim contribution of EUR 50,000 with legal fees well in excess of this amount.

This is a good example that shows even if your most trusted clients do not intend to make a claim against you, their insurers or another third party may do so. You should always get instructions in writing. If you do not, your “favour” can become very costly.

Get in touch with Austbrokers Countrywide

If you would like further information or have any queries, please contact Austbrokers Countrywide on 1800 245 123 or email us at info@abcountrywide.com.au

Disclaimer:

This article provides general information, does not constitute advice and should not be relied on as such. Users should carefully evaluate accuracy, currency, completeness and relevance of information and seek professional advice relevant to their particular circumstances.