Professional Indemnity Guide for Higher Education Institutions

Professional Indemnity insurance is an insurance policy designed to help protect organisations, institutions and companies for situations where the service user alleges that the service is inadequate.

Any organisation which provides a professional service or gives advice could be sued if the recipient is unhappy with their work, that the service was deficient and that this has left them with a financial loss. For universities this is usually around the risk of failure to educate claims but can also include elements in respect of service to third parties with whom you are engaged.

Like other Liability policies, PI is ‘negligence based’ or can relate to an alleged breach of professional duty. This poor conduct can then result in a financial loss, physical damage or injury to those in receipt of the service. For a university this would principally be the student but could involve other third parties to whom the University owe a duty of care.

A claim of professional negligence can be made against anyone considered to have expertise in the services they provide. For the claim to be successful there must be evidence that the service provided fell below the standards of their profession, resulting in negative consequences.

This means that a third party has to prove that your institution has been negligent in delivery of services. There is plenty of case law outlining how negligence is proven including cases involving universities.

As with other insurance covers PI is important because it can provide financial and legal support when claims are brought.

Unlike some statutory insurance covers i.e. Employers’ Liability, PI is not a legal requirement. Most professional service, design and advice based organisations (solicitors, accountants, architects, surveyors) purchase PI insurance as the legal costs involved in negotiating and settling and subsequent awards can be significant. Increasingly it is a contractual requirement when engaging with third parties.

Universities include this cover in their Insurance Programme primarily because of the risk, increasing in recent years, of failure to educate claims.

Professional Indemnity insurance provides legal costs and settlement awards against your institution up to the Liability Limit within the policy for claims on negligence resulting in financial loss. It also extends to areas such as breaches of confidentiality, defamation and intellectual property rights.

PI insurance policies are provided on a ‘Claims Made’ basis. This means the insurer will only consider claims made under the policy whilst it is in force. This differs to ‘Incidents Occurring’ where indemnity is determined when the negligent act occurred.

As with other insurance covers PI is important because it can provide financial and legal support when claims are brought. Such claims can be complex and lengthy and costs can be significant. In a sector where the student is increasingly seen as a ‘consumer’ it is considered a likelihood that claims where the education provided isn’t considered to be adequate will increase.

The involvement of the new industry regulator (Office for Students) and the introduction of Student Protection Plans are also relevant, as it is expected under these plans for students to be compensated where courses either are withdrawn or are not deemed adequate. Whilst PI insurance will not fulfil and meet all the expectations here it can support and play a role in delivering certain requirements. It is also relevant when engaging with third parties commercially who will expect PI insurance to be in place. Research projects undertaken in partnership with commercial organisations will often have confidentiality requirements built into the contract and failure to observe these correctly could lead to significant claims against the University from the commercial partner for loss of future revenue.

Similarly, unauthorised use of third party intellectual property in such research could lead to claims from both the commercial partner and the intellectual property rights holder.

As with any insurance policy particular attention should be given to “Claims Conditions” and the Endorsements section of the Policy Schedule. You must read your policy documentation carefully, if you require clarification please speak to your contact at Gallagher.

We know that Universities have developed policies and procedures in respect of complaints and that there is guidance produced by the Office of the Independent Adjudicator (OIA) and the regulator (Office for Students). The recent guidance document ‘Putting Things Right’ (see Further Links) is a recent example. We would recommend that departments involved in handling and managing disputes and complaints are made familiar with your Professional Indemnity cover and how it operates. This could include ‘scenario testing’ for various types of incidents and at which point to escalate and notify insurers.

Our broad recommendation is that if there is any doubt you can consult insurers for an opinion. It’s free and reporting an incident does not mean relinquishing control or that this will negatively impact the claims experience of your institution or the Group. You are just ensuring that you are complying with the policy terms and conditions and the panel solicitors may be able to provide valuable advice and support.

Claims (and circumstances that might reasonably be expected to produce a claim against you) must be notified to insurers as soon as reasonably possible. Claims conditions vary on different policies. Some are more onerous in insisting that claims must be reported in a set timescale and this should be checked in the policy.

It is important to note that claims or circumstances should be notified irrespective of either views as to whether or not such claim will succeed or the amount of the claim will exceed the policy excess.

It is widely acknowledged that incidents that start small in scale can escalate over the longer term to more serious, and costly scenarios.

Insurers will expect reasonable assistance and evidence concerning the cause and value of any claim. This information will enable insurers to make an initial evaluation of the claim. Additional information may then be requested.

Ideally, as part of the initial notification you will provide:

• Your name, address, and your telephone number;
• The policy number;
• The date when you became aware of the claim or circumstances;
• The circumstances leading to a claim or potential claim;
• Details of the claim together with the claim value, if known;
• Names and addresses of any other parties involved or responsible for the claim;
• Initial views on liability and whether the client has grounds for the claim;
• Details about the potential size of any claim or loss suffered.

Insurers will pay defence costs incurred by you but only in respect of those costs for which they have provided their written consent.

You will have a excess which, as with other policies, defines the amount of financial risk you retain. This will usually apply to defence costs as well as damages and claimant costs. Market conditions have also seen the level of excess increase. We recommend that irrespective of the perceived quantum of the claim that you notify insurers to avoid potentially prejudicing insurer’s position.

Your insurers have a panel of four firms that they will instruct where appropriate. These firms are BLM, Beale & Co, Kennedys, and DAC Beachcroft.

One of these firms would be appointed in all cases, unless there are exceptional circumstances, or where it can be assessed with some certainty that a claim will fall within the level of the excess or contribution.

Appointing panel solicitors allows insurers to monitor and control both the quality of advice provided and the cost of this. Panel solicitors have been through a rigorous appointment procedure where they are required to evidence both strong competency in the education sector, a specialism in professional negligence claims and a commitment to competitive hourly rate structures. These are regularly monitored and assessed by insurers.

This can have a positive impact over the long term on the cost of claims incurred by the Group as well as providing professional defence and support.

Insurers will pay defence costs incurred by you but only in respect of those costs for which they have provided their written consent. You may be required to pay all costs where such consent is not provided.