Risk of Cancelling PI or D&O Insurance
What is the risk of cancelling your Professional Indemnity (PI) or Directors & Officers (D&O) insurance covers?
With government lockdown biting and sadly some firms having to make difficult decisions about their business, you may be reviewing your insurance covers and considering cancelling some, or all, of your policies.
If you have a Professional Indemnity and/or D&O policy, we strongly urge you to discuss the matter with your insurance broker first, due to the nature of the basis of cover.
What is the ‘basis of cover’ and why is it important?
For most insurance claims, it is the policy in force on the date of the occurrence of the incident that would provide the cover. So, for example, if you cancel your liability or motor insurance today but tomorrow you are notified of an incident that happened 2 weeks ago, then you had cover in force on the date of the incident and you can make your claim. This is known as a ‘claims occurring’ basis of cover.
However, with Professional Indemnity and many D&O policies, it is the policy in force at the time of you first being made aware of a loss or incident that will defend you and settle the claim. This is regardless of when the actual work was done that has resulted in a potential claim.
So, if you cancel your Professional Indemnity policy today but tomorrow you are first notified of an incident, which happened 2 weeks ago, there is no longer a policy in force to be able to make your claim. This is known as a ‘claims made’ basis of cover. The bottom line here is that where a policy is cancelled and no cover maintained, there will be no insurance to meet any new claims arising from past work.
It is important to be aware of this and talk through the options available depending on your individual circumstances and industry or profession.
Why? Many professional bodies require ‘Run off’ cover for their members, who can find themselves liable for claims for some years after they stop practising. In many cases their liability ends after six years – but under certain circumstances they could be liable for 15 years or more.
We would also recommend that you talk to your broker about all of your commercial insurance policies, as many insurers are trying to help with cover and costs for customers directly affected by COVID-19.