Why Combining GL and PI Policies Makes Sense for Your Professional Clients

Managing your professional clients GL and PI policies can often feel a lot like herding cats. That’s before you even get started on their property coverage. With different policies, varying wordings, changing insurer appetites, and the constant chase for completed proposal forms, it’s easy to feel overwhelmed.

But what if there was a simpler way? one that could save you time and provide greater peace of mind for both you and your clients? Here’s a valuable tip: placing your client’s PI and GL coverage with the same insurer could be a game-changer. Think of it as opting for the combo meal rather than ordering everything separately—it’s more efficient, may avoid cover gaps, and often more cost-effective.

First, let’s break down what we are talking about here …

General Liability (GL) Insurance:

GL insurance provides cover for liability arising from the everyday risks of operating a business. Risks like bodily injury (BI), property damage (PD), and advertising injury. As an example, think of someone who visits your client’s premises and unexpectedly slips on a wet floor resulting in bodily injury; or suffering damage to their personal property. A GL policy covers legal costs and settlements for BI and PD claims. And if the insured is found to be liable by a court or an insurer. This transfers the financial risk from the insured to the insurer.

Professional Indemnity (PI) Insurance:

PI insurance is a safety net for your clients against assertions of negligence or breach of duty made against them by a client which arises from a professional service or advice they have provided. Covers include legal costs and any damages that might need to be paid when covered under the policy.

Tip: Ensure that your client’s PI policy includes coverage for BI and PD from breaches arising from their professional service or advice. Special attention should also be given to the business description in the policy ensuring that it matches the services or advice provided by the client.

Why placing PI and GL with the same insurer can offer several key advantages:

Fewer Proposal forms: Streamlined process with fewer proposal forms for your client to complete.

Aligned Coverage: Avoid the potential risk of gaps in coverage that may occur when policies are placed with different insurers. Think of it like buying a pair of shoes only to discover they’re two different sizes—not ideal!

Potential Discounts: Some insurers may apply a discount to a risk if the client has multiple policies with the insurer.

Reduced Administrative Work: Simplify your workload with fewer wordings to review and less paperwork to chase, review, and file. This efficiency could free up time for other important tasks—or even a new hobby!

Simplified Claims Process: When a claim arises, it can sometimes be unclear whether it falls under the PI or GL policy. Having both policies with the same insurer allows for a smoother claims process, reducing the risk of late notifications, particularly under a claims-made PI policy.

Clarifying Claims:

Bodily injury and property damage claims can sometimes fall under the PI policy if they arise out of proven professional negligence allegations. When GL and PI overlap it’s essential to recognise that certain professions often experience confusion over whether a claim falls under the PI or GL policy. These professions can include:

• Property managers
• Real estate agents
• Project managers
• Recruitment risks
• Interior designers (they often involve in sourcing furnishings and fittings or might involve in construction management or works supervision)

Case Studies: When Bodily Injury Claims Land in Different Policies

Claim Example 1 – Bodily Injury falling under PI

A real estate agent and property manager held a PI policy with a $1 million limit. A different insurer insured the GL policy. In late 2016, a fire at a managed property resulted in the death of a resident. Six separate civil claims for psychological injury were brought against the insured by immediate family members of the deceased resident.

The claims alleged that the property manager was negligent in their professional capacity by failing to ensure the smoke alarms in the property were functioning and that windows could easily be opened and closed properly. The insured was aware of the issues but did not inform the property owner. The claims were jointly settled under the client’s PI policy for an amount over the policy limit but due to contribution from the property owner the settlement contribution of the insured was fractionally below their policy limit.

Considerations:

Adequate Limits: Was a $1 million limit sufficient for professionals with BI/PD exposure under their PI policy? PI claims traditionally take some time to develop through to being a claim. This claim, which began in 2016 and settled in 2019, underscores the importance of considering the adequacy of limits before a claim is made.

Costs Inclusive vs. Exclusive: For professions with significant BI exposure, understanding the difference between costs-inclusive and costs-exclusive limits is critical, as these claims can take years to settle and incur substantial defence and inquiry costs. Want to learn more about costs exclusive vs. costs inclusive excesses?

Timely Notifications: Fortunately the broker in this case promptly notified the PI insurer. This avoided potential complications enabling the claim to be managed expeditiously and settling within the limit of the policy. Delays in notification under a claims-made policy could have resulted in a significant coverage gap given the low limit of indemnity which may have seemed sufficient when the policy was taken out. Brokers keen understanding and advice to clients regarding notifications at the time the policy is entered into is vital. Want to learn more about the impact of timely notifications?

Claim Example 2 – Bodily Injury falling under GL:

A tenant visited their property manager’s office to sign a new lease. Distracted by their conversation with their property manager, the tenant tripped over a loose power cord that had been left on the floor near the reception area and fell into a nearby desk.

The tenant suffered a sprained ankle and filed a claim against their property manager alleging that they failed to ensure the safety of the office area.

The incident led to a claim under the property manager’s GL policy due to bodily injury. The claim covered costs for medical expenses incurred by the tenant and the physical therapy that they had required for recovery.

The tenant’s claim arose out of the physical condition of the property and the property manager’s failure to maintain a safe environment. As the allegations do not include any professional advice, decisions, or services provided by the property manager this claim would be classified as a GL claim based on the facts presented.

Key Takeaways:

Optimal Coverage: Consideration should be given to a client’s PI and GL policies being placed with the same insurer to streamline claims and minimise the risk of gaps in cover. However, when this isn’t possible, it’s advisable to notify both insurers to avoid late notifications, particularly under claims-made PI policies.

Higher Limits: Given that BI and PD claims may fall under a PI policy, consider higher coverage limits for professionals with greater exposure to BI and PD risks. Claims Example 1 illustrates how a $1 million limit on a PI policy may not be adequate when facing complex BI claims.

TIP!

Occurrence Based Wording:

If your client has a combined PI and GL policy, ensure the GL coverage is on an occurrence basis. This can facilitate a smoother transition if they later move to a standalone GL policy. As many standalone GL policies are occurrence-based. Shifting from a claims-made GL policy to an occurrence-based one could leave a significant coverage gap.

Did you know?

Berkley’s new bindIT Professional Indemnity product offers combined PI and GL wordings for several professions, including

• Accountants
• Real Estate agents including Property Managers
• Mortgage/Finance brokers
• Recruitment consultants
• Miscellaneous Risks

Our combined wording includes GL written on an occurrence-based. Wording assisting in a smoother transition when moving clients to and from a combined wording.

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Solving the Public and Products Liability Puzzle

Public and Products Liability VS Professional Indemnity

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Important Notice

Berkley Insurance Company (limited company incorporated in Delaware, USA). ABN 53 126 559 706 t/as Berkley Insurance Australia is an APRA authorised general insurer. Information provided is general only. Intended for brokers and has been prepared without taking into account any person’s particular objectives, financial situation or needs. It is not intended to constitute legal advice. You should always obtain legal or other professional advice appropriate to your own circumstances. Insurance cover is subject to terms, conditions, limits, and exclusions. When making a decision to buy or continue to hold a financial product, you should review the relevant Policy Wording.