Engineering Disciplines and Professional Negligence - An Insurer Perspective

The underwriting of professional negligence has proved to be an evolving science. As with most insurance products coverage offered in the past was very broad but as legal precedent demonstrated to Insurers areas of unforeseen exposure policy documents per se have become more restrictive until today the insurance market through attrition have produced a basic policy structure with various purchasable extensions which together provide insuring professionals with coverage that has proved to be adequate for their needs. The basic policy provides indemnity and protection for fortuitous negligence. In a practical sense, however, professional indemnity policies are really a defence document in so far as policy holders are relying upon the expertise of Insurers to protect them in the event that a claim is made upon them. Whether damages are awarded is in many respects a secondary consideration, the most important factor is to ensure that policy holders are protected in terms of the legal defence mechanism. By way of illustration we are currently in the process of defending a large professional firm which purchased from us a policy with a limit of indemnity of $10M. The case has been running in a Supreme Court now for 14 months and the defence costs which we have incurred on their behalf are rising close to $8M as I put pen to paper. Defence costs of that magnitude would in effect terminally cripple all but the very largest professional operations in Australia. In more recent times coverage has been provided in Australia for breaches of the Trade Practices Act and similar legislation enacted in various States. No-one really appreciated the comprehensive impact which the Trade Practices Act would have on commerce in Australia. Most professionals thought that indeed they would be exempt from prosecution under this Act. The passage of time has clearly indicated that this is not the case and we have found that it is much more difficult to defend a claim involving breaches of the Trade Practices Act than it would be to defend a claim for breach of tortuous liability.