A long term view is essential!
Professional indemnity (PI) insurance is on a “claims made” basis. This means that it is the policy to which a claim or circumstance is notified which deals with the issue, and NOT the policy which was in force when the contract was signed, the work was performed, or the damage occurred.
This means that it is usually a future PI policy which is relevant to the work which is being performed now. It is unusual for issues to come to light within the first 12-18 months, and as such the present policy is unlikely to be called upon for a current project.
Deeds create liabilities that persist for 12 years before they are statute barred. Liability for hidden defects is even longer, as the claimant has 3 years from date of knowledge to bring a claim, but subject to a longstop of 15 years. PI experience is that claims do regularly occur at the end of these periods ie 10-15 years from the work being performed.
PI experience is also that it is not unknown or even very unusual for the professional to hear nothing about the problem until proceedings are issued at the end of the liability period. The result is that legal papers drop on them without warning and out of the blue more than a decade after they worked on the project.
As such they will be making first notification to a PI policy 10-15 years on, and a good number of policies after the one in force when they signed the contract.
Contract Liability – The trap of better PI cover
PI insurance is a renewable contract and the cover can change at each renewal. The PI market itself is cyclic, and subject to ebbs & flows of underwriter appetite based on sector claims experience and larger political & economic events.
This means that you are likely to have a different insurer and different cover in the future. By 10 years from now it may well have significantly changed several times.
As such there is a real danger in arranging more PI cover for contractual liability than the PI market standard and then relying on this cover in signing more onerous contracts.
The cover would need to be maintained in future policies and therefore be in place when the claim or circumstance is notified. However it may well be the case that the cover is not available in the future, as insurers are generally reluctant to give more than the market standard in this area.
If the cover was no longer in the policy at the time the claim, the issue would then be uninsured.