Hidden clause that may invalidate your business insurance

If you are a professional partner in business you need to double check you really do have indemnity insurance – even if the insurer has sent a policy.

Lawyers, surveyors and other property professionals have weathered a storm of claims following the credit crunch for overvaluing properties and making irregular mortgage applications.

Many insurers are now aggregating claims against professional partnerships that leaves each one exposed to settling claims against the others.

Solicitors are the latest to experience the worrying trend.

One partner at a firm in the West Country was involved in a series of alleged fraudulent property transfers that were apparently kept confidential from the rest of the practice.

When the discrepancies came to light, a series of mortgage lenders claimed against the firm’s professional indemnity insurance (PII). The insurer aggregated the claims in to one with a maximum limit of £2 million.

Subsequently the firm has stopped trading and several partners are bankrupt and others face the same fate as PII claimants who cannot win an insurance settlement take them to court.

The Solicitors Regulation Authority is expressing concerns about the interpretation of the aggregation clause in professional indemnity insurance and suggests that limiting the pay out could affect the right of redress under policies.

A wide range of businesses take out professional indemnity insurance to cover the risks of giving wrong advice to clients that leads to a loss.

These include accountants, lawyers, property valuers, surveyors, financial advisors – even electricians and heating engineers who design domestic and commercial systems are affected.

The end result is many small businesses may have to stop offering advice because they fear the cost of a PII claim, which will reduce choice in the market and push up prices for consumers.

The problems is compounded because professional indemnity claims often do not arise until many years after the initial advice is offered to a consumer.

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