Professional Indemnity Explained - Any-one-claim or Aggregate Limits

Professional Indemnity Explained - Any-one-claim or Aggregate Limits

Our latest edition of Professional Indemnity Explained examines Aggregate or Any-One-Claim limits - The PI cover small print that you really need to know!

In a previous article, we explored the key differences between a basic negligence-only policy and the broader comprehensive full civil liability contract as well as the importance of understanding which one suits your individual business.  

However, it wouldn’t be insurance if it was as simple as that! You also need to understand how indemnity policy limits are calculated and the different options available, as the ramifications could be huge if you don’t fully understand what you’re buying.

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What is a PI Policy limit of indemnity?

In simple terms, this is the maximum amount the policy will pay towards a claim, limits range from as little as £50,000 to multi-millions depending on the individual requirements of your business.  

As we explored previously, you need to carefully consider the level of indemnity which fits your business based on its specific activities, size of contracts, as well as any contractual or regulatory requirements.  

However, before you can really make an informed decision, there is another critical factor which will impact your thinking.

Aggregate or Any-one-claim limit of Indemnity

PI policies are generally offered with two different types of limit.  A more restricted  “aggregate” limit which provides a limit of indemnity for the length of the policy in totality.  

For example, if you have a £100,000 PI limit of indemnity and suffer a loss of £50,000 in month two of the policy, you will have £50,000 left of your aggregate limit for the remainder of the policy.

Any-one-claim limits of indemnity provide the level of indemnity for each and every loss during the policy term.  

For example, if you have a £100,000 limit and are unlucky enough to suffer three separate claims of £50,000 during the policy period, they will all be settled in full.

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The potential pitfalls of an aggregate limit of indemnity

If you suffer a loss, your insurer may offer the option of paying an additional premium to restore your aggregate limit.

However, the key problem is the potential risk of multiple claims received in relatively quick succession, which can quickly exceed your indemnity cover.  

This should be a key consideration when looking at the different PI policy options available to you.

Should I purchase Aggregate or Any-one-claim PI cover?

For some higher risk trades, PI insurers may only offer an aggregate limit of indemnity option to restrict their exposure.  

If this is the case, you need to look carefully at the limit you purchase to ensure it is adequate.

If a choice is available, any-one-claim limits do provide peace of mind and wider cover, but you need to look at the different policy option in entirety.  

Generally, you may find that a basic Negligence Only policy may be on an aggregate limit, whereas a full civil liability policy will offer any-one-claim limits.  

Some companies will be comfortable with aggregate and negligence only cover but select a higher threshold of indemnity to protect them against a single significant loss which they view as their primary potential exposure.

In contrast, a company with a larger volume of smaller clients may prefer any-one-claim limits to protect their position if several clients suffer the same type of loss, and multiple claims are received.

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Legal costs – Costs inclusive or costs in addition

If I haven’t muddied the water enough, another critical differential between Professional Indemnity Insurance policies is the provision of legal expenses and the impact on the limit of indemnity.

Again, more basic policies will be “costs inclusive” which effectively means that the legal costs incurred in dealing with or defending a claim come out of the aggregate limit of indemnity.

A “costs in addition” policy will pay all legal costs and expenses in addition to the policy limit of indemnity.

As you can imagine, legal costs can quickly mount up when defending a complex PI claim.  

If you are considering an aggregate limit where costs are inclusive, you need to make sure you’re purchasing enough cover, or you might find that a claim exceeds your limit of indemnity and you’re left with an expensive bill for the balance of the claim.

Apples with Apples

Hopefully, the picture is starting to become a little clearer despite all the Insurance jargon.

Not all policies are the same, and you need to compare professional indemnity insurance carefully to review all the different options or preferably seek the advice of a PI Insurance expert, it’s easy to find a cheap professional indemnity policy.

Still, if it’s not offering the cover you need for your business you could, unwittingly, be risking it all!

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