Issue of insurance to become more prevalent as credit crisis continues - PI and D&O

31/03/2009

With the state of the financial and property markets continuing to be volatile as the economic crisis rumbles on, the issue of obtaining a comprehensive level of Professional Indemnity (PI) insurance could become ever more pressing.

Roger Flaxman, founder and principal of professional insurance claims consultants Flaxman Partners, points out that as an increasing number of businesses in the construction industry experience difficulties in the wake of the financial downturn, the likes of surveyors and valuers are set to become exposed to the losses that have been realised.

"Construction, property and architectural businesses are all suffering a major reduction in activity and all will have a legacy of liability from the ravages of the compensation claims that will attend this unhappy economic time," Mr Flaxman points out.

As such, Flaxman Partners urges those professionals - including those that are a director, partner or member of an LLP - to ensure that they continue to be covered by their PI insurance for their dealings with a business they have worked with over the past 15 years, even if such a firm has subsequently been put into receivership, has been liquidated or filed for administration.

The moment liquidators and receivers begin to take steps to cancel the insurance protection attached to a firm that has gone under - in an effort to recoup the remaining premium as a distributable asset - company directors are warned that they will be at risk. "Once cover is cancelled you are no longer insured. It cannot be reinstated once the firm has gone".

"You cannot assume that cover is being maintained to protect you and it is incorrect to believe that your liability dies with the company or partnership. It doesn't," the firm points out.

From here, former directors are advised that there is "a personal liability risk to consider".

However, as the economic outlook continues to deepen and the insurance market hardens - as it steels itself against corporate and professional risk - it is suggested that the ability for firms to arrange special long-term run-off protection may become an increasingly difficult task. As such, the professional insurance claims consultants urge businesses to not delay in finding out what options are available to them.

And as an example of the need to do this, Flaxman Partners points to an enquiry submitted to it by a director of a firm that has recently gone into liquidation. The professional points out the liquidators have announced they will not only cancel the organisation's PI cover but also their Directors & Officers (D&O) Insurance in order to gain access to the return premium. When Flaxman Partners was asked on how he would be able to obtain cover for the next few years, it states that there although there are "several possible solutions", funds for future premiums and also excesses in the event of a claim will need to be provided for. However, it points out that individual, tailored advice must be given with every case as they are each different.

Writing in an advice column for the Times last summer, Jon Sutcliffe, partner at legal practice Kingston Smith, claimed that even if directors are not purposely reckless or negligent in their day-to-day working practices, it is important that they "exercise their duties diligently". He advised the obtaining of D&O Insurance, after a director submitted a query about the level of risk he faced after making a business decision which was taken in good faith. Furthermore, Mr Sutcliffe points out that those holding concerns about specific board decisions were urged to consider seeking out independent advice.

Such comments come after Lloyd's of London warned that an increase in the numbers of D&O and PI insurance claims would be driven by disgruntled investors looking to recoup losses as a result of the financial downturn.

Click here for more information about D&O Insurance.

Click here for more information about Professional Indemnity in general.

PYV are one of the UK's leading providers of professional indemnity insurance. This news article has been produced by Adfero in collaboration with PYV and its unauthorised use is not permitted.

(c) 2008 Adfero Ltd.

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