Author: Stephen Chessher, partner, Beale & Co and Fiona Mackey, solicitor, Beale & Co  It is often only when a claim is made that an engineer will dust off his or her professional indemnity insurance (PII) policy and consider what the policy covers – and, just as importantly, what it does not cover. In this article, we look at some of the key features of PII insurance and some common terms and conditions. Unlike many other types of insurance, PII policies are invariably on a ‘claims made’ basis. This means that the policy covers claims first made against the policyholder during the currency of that policy. This should be contrasted with a ‘claims occurring’ policy, which covers loss or damage which occurs within the currency of the policy. Under a PII policy, the negligent act or omission that triggers the cover may have taken place years before the policy incepted. The key date is when the claim is made and it is for that reason that professional appointments commonly require the engineer to maintain PII in force for six years after completion. Although a claim may not be made until years after the event, the policyholder will be required to notify insurers of any circumstances which may give rise a claim in the future. If a circumstance is notified in this way, any such future claim will be dealt with as if it had been made at the time that the initial circumstance was notified. To complete the picture, when applying for PII insurance and at each renewal, the policyholder is required to declare not only claims made, but also circumstances that may give rise to claims. [login type="readmore"] These provisions can give rise to difficulty. What has to be notified to the insurers and when? Clearly, not every complaint is likely to give rise to a claim, but many complaints have the potential to do just that. The precise requirements vary from insurer to insurer. If in doubt, take advice from your insurance broker or solicitor. A notification will not necessarily impact on future cover, but a failure to notify could result in a claim being refused. LIMIT OF INDEMNITY It goes without saying that the level of cover should be commensurate with the type of projects undertaken by the practice, but consider this: claims sometimes come out of the blue which could not reasonably be anticipated. A consequence of the 'claims made' basis of cover is that the terms of the policy in force when the claim is made may be very different from those that prevailed when the project was undertaken. Many practices have had to downsize since the end of the boom. There will be an obvious temptation to reduce the level of PII cover to match today's new realities. But cover may not then be adequate. Engineers need to ask themselves whether today's cover will be sufficient to meet liabilities that may arise on the largest projects undertaken in Celtic Tiger times. A similar point arises in relation to policy excesses. The excess may have changed from year to year. The relevant excess is that which applied when the claim was first made and notified to the insurer or when a circumstance was first notified. PII policies provide an indemnity against the policyholder's legal liability to pay both damages and legal costs to a claimant. It is an unfortunate feature of the Irish legal system that legal costs can sometimes equal or even exceed the amount of damages. That is particularly likely to be the case in a multi-party claim, where one unsuccessful defendant may end up having to bear the costs of a number of successful defendants. The PII policy will also cover the policyholder's own legal costs in defending a claim. They are generally payable in addition to the limit of indemnity and, indeed, the insurer will generally instruct their own solicitors to defend claims brought against their policyholders. If defence costs are included in the limit of indemnity, it will clearly be necessary to opt for a higher limit than would otherwise be the case. HOW MANY CLAIMS? An issue which sometimes causes difficulty is whether there is a single claim or multiple claims arising out of the same negligent act. Suppose that the engineer had designed foundations for houses on an estate for a developer client. The foundation design is common to all the houses. There is a serious design error, which results in all of the houses having to be underpinned. Claims are made by each of the affected homeowners. Is this one claim or many claims? If this scenario is treated as a single claim by the PII insurers, the policyholder will have to pay only one excess. On the other hand, the claim will be subject to only one limit of indemnity and cover may turn out to be inadequate. If each homeowner’s claim is considered separately, a separate limit of indemnity will apply to each claim, but by the same token a separate excess will be applied. PII policies contain 'aggregation' provisions to deal with this sort of scenario. The policy will define what is a claim and set out the circumstances in which they may be aggregated. However, as clearly drafted as these provisions may be, they can be difficult to interpret in practice and sometimes give rise to disputes. Like all insurance policies, however, PII policies are subject to various exclusions, the nature and wordings of which vary from insurer to insurer. Consider just one issue. Engineers and architects are sometimes asked by their clients (or others under collateral warranties) to warrant fitness for purpose. This should be resisted, as it is likely to take you outside the terms of most PII policies. Under statute and common law, a professional is obliged to exercise reasonable skill and care in performing his or her duties. That is also the standard of care set out in commonly used forms of professional appointment, such as Engineers Ireland/ACEI SE9101. Professionals are not, in the ordinary course of events, in a position to warrant a particular outcome or result and if they accept contractual obligations of this sort, which are more onerous than the norm, they are likely to find that they are not covered by their PII policy. DISCLOSURE PII policies, in common with other insurance contracts, are contracts of 'utmost good faith'. This means, amongst other things, that the proposer is under a duty to disclose to the insurer all facts material to the proposed insurance. What is a material fact? It is something that would influence the underwriter in deciding whether to insure the risk proposed, and if so, on what terms. Questions included on the proposal form, for example as to the nature of the engineer's practice and as to previous claims or circumstances that may give rise to claims, are clearly material. Unfortunately for policyholders, the duty to disclose may extend beyond the questions asked on the proposal form. The consequences of non-disclosure are draconian. Non-disclosure will generally entitle the insurer to avoid the policy, i.e. it will be as if the policy had never existed. It follows that completion of the proposal form should be carried out with all seriousness and circumspection. The only safe advice is, ‘If in doubt, disclose.’ The golden rule for PII policies is that any circumstances that may give rise to a claim must be notified to the insurer as soon as possible, whether or not a claim has in fact been made. Remember that and you should not go far wrong. Beale and Company act for engineers and their professional indemnity insurers in defending PI claims. If you have any questions about this article please contact Stephen Chessher at (01) 775 9522/s.chessher@beale-law.com or Fiona Mackey at (01) 7759535/f.mackey@beale-law.com. Stephen Chessher is a partner with Beale & Co. He advises construction and other professional consultants in Ireland and the UK on professional appointments, collateral warranties and other contractual issues. He acts for architects, engineers, surveyors and valuers, among others, and has particular expertise in suspected fraud, insolvency and regulatory issues in Ireland and the UK. He also advises on coverage issues and disputes, including policy avoidance, and conducts mediations and arbitrations in Ireland and London.     Fiona Mackey is admitted as a solicitor in Ireland, England and Wales. She joined the Dublin office of Beale and Co in 2009. Her area of speciality is professional indemnity defence litigation. She acts for engineers, architects, solicitors, brokers, law searchers and their professional indemnity insurers. She also advises on complex policy disputes and alternative dispute resolution procedures including mediation and arbitration.