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.