Insurance review to clarify PI cover
The former chairman of the Australian Securities and Investments Commission (ASIC), Alan Cameron has been appointed to head up a Federal Government review of the Insurance Contracts Act, including its compatibility with the Financial Services Reform Act.
The review, announced by the Assistant Treasurer, Senator Helen Coonan has implications for financial advisers as it encompasses professional indemnity issues.
The review has already received the endorsement of the Insurance Council of Australia which has signalled that it will be pressing for particular changes to the “claims made” element of professional indemnity policies.
The executive director of the ICA, Alan Mason is hoping for changes to the legislation which will overcome a 2001 High Court ruling effectively allowing for claims outside the period of cover.
Professional indemnity policies are “claims made” policies which means the claim is made on the insurance contract in force at the time the claim is made, not (as in public liability), the policy in force at the time the alleged negligent act occurred.
“Policyholders are required to notify the insurer as soon as they become aware of the claim. Therefore if the insured did not advise of a claim or potential claim in the period of cover, they should not be able to make a claim on the insurer,” Mason says.
“However, in 2001 the High Court ruled in FAI vs Australian Hospital Care that late notification of a claim (outside the period of cover) can be acceptable. The decision undermines the operative intent of the policy wordings and makes the estimation of future claim costs much more uncertain,” he says.
“This interpretation is at odds with most other parts of the world. Unless this issue is addressed it will continue to inhibit insurers' interest in providing professional indemnity cover in the Australian market,” Mason says.
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