Insurance - a guide to getting the best
To many hydrographic surveyors insurance is seen as being forced upon them by contractual requirements. To others it is prudent risk management. However you regard insurance, you do need to look at how to get the best out of what will be a cost to your business.
What are you buying?
Professional indemnity insurance pays claims made against your company as a result of your professional negligence. However you don’t have to have been negligent to have a claim made against you. The world is becoming a more litigious place. Claimants rarely sue the main contractor and often all project participants will be included in a litigation. The cost of being proved innocent can be high as illustrated in the claim example below:
A hydrographic surveyor had been contracted to produce a chart for a telecommunications company to allow the positioning of underwater fibre optic cables. A significant time after the charts had been created a ship towing an anchor made contact with one of the cables and an underwater electricity cable, which caused some substantial damage estimated to total USD 175,000. A claim was made against all parties in the project, including the hydrographic surveyor. However the surveyor was successfully defended on the basis that the charts were created specifically for their client and a year previously to the incident. However the cost of the defence came to USD 32,000.
The cost of legal assistance is always high and time consuming. The ability of the correct insurer to manage the litigation is vitally important to ensuring that the costs are kept to a minimum and to allow you to continue with your business and not to divert your efforts into the often complicated ensuing legal issues.
What do you need to be insured?
In my capacity as an underwriter, I am often requested to provide professional indemnity insurance on a contract only basis. The reasons are understandable. For example, the cost of insurance can be easily transferred to your principal in the contract price. ITIC has a great deal of experience reviewing contracts for our members. We can quickly cut through the legal jargon and assess how and where you may have liability that could affect your insurance requirements.
However, as I have discussed above, you do not need to have been negligent to be claimed upon. Moreover, you do not even need to have a contractual relationship in place with the claimant. If a third party relies upon your data, which leads to a loss, there could be an argument you should have foreseen that party as someone who might be affected by your error.
Therefore, generally ITIC would recommend that you take professional indemnity insurance for your whole business, rather than on a contract by contract basis. Not only does this give you better protection, it is more cost efficient than taking out numerous contract based policies.
Who should you insure with?
Another consideration is the type of insurance company you choose to place your insurance. There are two general types of insurer. Firstly, proprietary or commercial insurers; and secondly, specialist companies, such as ITIC. Commercial insurers tend to provide a wide range of insurances, of which professional indemnity will be just one of many.
ITIC is a specialist mutual professional indemnity insurer and is owned by its policy holders who share any surplus funds. Over the last 17 years ITIC has returned over US$ 67 million to members as a 'dividend'. Commercial general insurers are owned by their shareholders and any profits are returned to the shareholders in the form of dividends.
ITIC has a board of directors taken directly from its membership. As such there is always someone at the helm, who understands what it is like to be one of the assureds. We know and understand the commercial reality of situations and are always able to provide advice and support.
ITIC also uniquely offers "discretionary insurance", where you can present any disputed claim to the non-executive board. ITIC currently has among the 13 directors on its board, Peter French of BMT and Ugo Salerno CEO of RINA Societa per azioni.
There are many companies who provide professional indemnity insurance. The decision of which one is right for your business can be made on many factors including reputation, recommendation and price. You should also consider what you the cover includes.
What should your professional indemnity policy include?
Consideration should be given to whether the cover offered is worldwide and the width of the cover. You will also need to think about how much insurance you will require and what level of self risk you wish to take.
As professionals working on a global stage, ITIC understands you are often required to operate in more than one country. Therefore, there are no exclusions to the cover for the countries in which you may be operating. Some insurers, mindful of the cost of defending claims in the United States and Canada, exclude these areas.
You should be aware that some insurers exclude death and bodily injury from their policies. This is surprising. It is not implausible that as an oceanographic consultant you might find yourself operating on board a vessel, and unfortunately, a third party crew member is injured from your mistake. Your professional indemnity policy should cover you for such an event.
Once you have chosen to take professional indemnity insurance, you will need to consider the limit of liability you will require. The limit of liability is the total amount the policy will payout. ITIC has seen a tendency over the years for the limit required in contracts to steadily increase. It is not uncommon for a small consultant to be asked to obtain a limit of liability of USD 5 million or even USD 10 million. This is clearly not an equitable apportionment of risk, especially when a consultant may be earning only GBP 80,000. You should hold insurance, but only in proportion to your input into the project and your earnings. The majority of the risk should be held by the principal contractor.
Furthermore, ITIC would strongly recommend that you limit your liability in your contract and you can use ITIC’s standard terms and conditions for hydrographic surveyors as a guide.
Another consideration is the deductible (or excess) on your policy. A deductible is the amount of risk you choose to hold. It is a two way mechanism. Firstly, insurance companies use it to encourage sound risk management from their policy holders. If the policy holder knows they will have to contribute financially to any claim, then hopefully, measures will be taken to avoid claims. The benefit to the policy holder is cheaper insurance. So, the higher the deductible you are prepared to hold, the lower the cost of your insurance. Although, too high a deductible, might not be feasible for the size of your business.
The proposal form will allow the underwriter to assess your risk, which will be based on income, the limit you require, deductible you choose to hold, the nature of your business and so on. The proposal form is how you present your business to the underwriter. Therefore, a good quality form is very important. Make sure that you provide clear and comprehensive information and that you make a full disclosure of all material facts. If you have had a claim, then tell the underwriter, it is not unusual for businesses to have had them!
Professional Indemnity Insurance is the cornerstone for successful, risk aware businesses. As I mentioned, unfair as it maybe, a business doesn’t need to have been negligent nor does it need to have a contractual relationship in place with the claimant to be claimed upon.
You can find a full range of our proposal forms on ITICs website, they are clear. If you have any questions you can always contact ITIC directly to assist in their completion, or your insurance broker.
Robert Hodge is an underwriter at ITIC and the Account Executive responsible for Hydrographic and Oceanographic professionals.