A golden opportunity

What do the following have in common - a firm of translators sued for £20,000 for errors in a technical brochure that required reprinting; a landscape designer sued for £30,000 for the costs of emptying and relining a poorly specified golf-course water feature; and a funeral director sued for £14,000 for having incinerated valuable heirloom jewellery along with the cremated deceased?

The firms in question - unlike many companies outside the closely regulated traditional professions of law, accountancy, architecture and surveying for whom professional indemnity cover is compulsory - were all sufficiently prudent, or well-advised, to have PI policies in place, which protected them against these losses.

Over the last few years, PI has emerged as a highly desirable cover for a far wider range of occupations beyond its traditional constituency of solicitors, accountants and architects. We live in a society that is increasingly reluctant to accept that things can ever go wrong without there being someone held to blame and brought to account financially. As a result, more and more companies that would never previously have considered taking out PI cover are coming round to appreciating the need for it.

Often, the trigger for this realisation comes in the form of a costly claim from a customer alleging negligence, error or omission in the execution of professional duties. Even a successful defence can still result in a significant cost exposure, which may not be recoverable from the claimant. The increasingly litigious social climate highlights a significant market opportunity for brokers and insurers in extending PI cover to a whole swathe of less traditional professions that now have a clearly demonstrable need.

Brokers with an existing specialisation in a particular sector, such as advertising or IT consultancy, will increasingly find they are pushing an open door in selling PI to their clients. More and more of the organisations that employ such professionals now require their suppliers to hold PI cover - making it a condition of tendering for work. Equally, however, there is a growing body of cautionary examples to inspire the reluctant - the advertising agency required to compensate its client to the tune of £300,000 for its failure to clear copyright on a piece of music used in a television advertisement; or the firm of IT consultants forced to pay out £1.5m for recommending a stock control system that proved deficient.

Media and IT are among more obvious professional occupations where PI cover is relevant but, wherever you look - from acoustic consultants to zoologists - there is an increasingly persuasive case to be made for taking out PI cover. Insurers have become more sophisticated in their approach to what have traditionally been lumped together as 'miscellaneous' professions.

Brokers will find that, where they lack specific sector understanding themselves, they can draw on the insurer's expertise to market knowledgeably and persuasively to less familiar trades and professions. Targeting the huge untapped market for PI can help brokers either to sell more to their existing customer base or to establish a lead-in to new clients, to which they can subsequently sell other policy types. Brokers operating commercial affinity schemes might also want to look at extending the cover on offer to include PI.

Considering a handful of professions in more detail may help to clarify some of the issues at stake. Take auctioneers, for example. Their professional duties might be considered to include: securing the best possible price for their clients; ensuring they obtain a binding contract; establishing the identity of the buyer; leaving no uncertainty over final bid price; the safekeeping of items at auction; diligent research; and accurate description. The scope for errors and omissions across this spread of activities is not difficult to appreciate.

Specifically, auctioneers may be sued for improper appraisal or evaluation, breach of contract, exceeding authority or misrepresentation, failure to observe a reserve bid, failure to administer the bidding process properly or failure to check the seller's right to title.

Two examples would include an oil painting, The Foxhounds, valued at between £30 and £50 by a leading UK auction house that subsequently sold it at auction for £840. The painting was later identified as being by George Stubbs and resold for £88,000. The original owner successfully sued for the auction house's dereliction of its professional duties. In another well-known case, an auction house sold a painting supposed to be the work of the early 20th-century Austrian artist Egon Schiele at auction for £500,000. The auction house was subsequently held negligent for failing to identify the work as a forgery and for misdescribing it at auction.

Travel and tourism claims

Travel agents and tour operators may also encounter a wide range of pitfalls against which they can protect themselves with PI cover. These mostly relate to claims brought by customers who have suffered a loss due to disrupted travel or accommodation arrangements. Examples of PI claims made by firms in the tourism industry would include: a £50,000 payout where the insured was sued by clients who found the ski resort into which they had originally been booked was not ready - and then that there was no snow at an alternative resort suggested; a £25,000 claim where the insured firm had failed to book a large party's flights early enough to secure reduced-price fares; and £10,000 where a tour operator had neglected to arrange travel insurance for a client who fell ill while on holiday in Africa.

Interior designers might not be the most obvious case for PI cover, but they too can find themselves exposed to significant legal liabilities where their negligence leads to problems that require costly alteration. One firm recently faced a £600,000 claim settlement having been sued by a luxury hotel that held it responsible for losses incurred in the course of a major refurbishment project that subsequently required extensive remedial work. The list is effectively endless - from graphologists to private investigators, ecologists to market researchers - the closer you look at any given occupation the clearer it becomes where potential liabilities can arise.

There has never been a better time for brokers to sell PI insurance to non-traditional professions. Premiums have recently become far more competitive as insurers have focused on miscellaneous trades and become more sophisticated in their broker distribution models. Combined with the clear trend towards increasing litigiousness, this makes the cost-benefit case for taking out cover far easier to argue.

Policy wordings are also becoming more sophisticated and increasingly closely aligned to the specific requirements of less obvious professions. Important cover extensions such as court attendance costs are also increasingly widely available, and the better insurers specialising in this type of business will often include access to free legal advice.

PI policies for non-traditional professions are also more commonly available now on a civil liability basis - an approach that was previously restricted to the compulsory PI professions. The value of this is that the policy does not simply respond to negligence, error or omission, but extends into the grey area beyond, bridging the gap between public liability and professional liability cover into which areas such as defamation or libel might previously have fallen. As long as any claim against the insured arises in the pursuit of their normal professional business, a civil liability policy should respond, without the insured having to prove that it arose specifically from negligence, error or omission.

As a broker, however, it is important to ensure that a policy headed-up as a civil liability wording does not effectively negate this description through the exclusions it contains. Insurers may seek to exclude libel and slander, breach of confidence, breach of copyright or intellectual property, contractual liability - or they may include onerous contract language that severely dilutes the benefit of having a civil liability wording.

Another aspect to look out for is loss-of-documents cover. Professional documents often represent many hours or days work for a firm and are integral to the professional service they offer. Reconstituting these documents can be a timely and costly process, but one that is often unavoidable. So this is often a very important cover extension to secure.

Different trades and professions all have their own peculiarities and special requirements and, increasingly, insurers are tailoring their policies to cater for these. One example is what is known as first-party or in-house cover, which has become a common extension to PI policies for media and advertising agencies.

PI cover is normally only triggered when a claim is brought against the insured firm. First-party cover, however, allows a firm to claim for the costs of putting right errors made in good faith that have yet to come to the attention of the agency's clients - and indeed may never do so provided they can be rectified in good time. Policies for advertising agents should also include cover for plagiarism, infringement of contract rights and indemnity for non-recoverable fees.

Broker involvement

Brokers can leverage their relationships with insurance partners that have the necessary experience and expertise to provide a sophisticated and appropriate response to the needs of clients in different sectors. But, from the broker's point of view, there is really nothing inherently complex about arranging PI cover for non-traditional professions. Underwriters typically require only the completion of a fairly straightforward proposal form, along with examples of the company's product or service literature and website address, if applicable. In other words, while premiums and, therefore, commissions are by no means huge in commercial insurance terms, given the relative ease of arranging cover, miscellaneous PI can prove a financially attractive area for brokers to get involved in.

More progressive insurers can also provide effective assistance to brokers looking to add value by helping their clients secure more favourable terms through the adoption and evidencing of appropriate risk-management measures - such as proper contract documentation, disclaimers and regular reviews of staff procedure.

Future legal changes may well drive demand for PI beyond the traditional professions - as with the motor trade, where the FSA has recently required operators selling warranty or other insurance products to carry PI cover. There will almost certainly be plenty of other similar instances of legally driven demand going forward. But a growing appreciation across many trades and professions of their exposures to potentially costly litigation is likely to be sufficient in itself to fuel significant future demand. Working with the right insurance partners, brokers currently have a golden opportunity to grow their businesses via this route.

- Nigel Salisbury, Manager, Royal & SunAlliance professional and financial risks.