April 2017

Protecting yourself as a professional

  • By Stuart Gradie, Account Manager, Austbrokers Countrywide

It is important for professionals to have the correct insurance and to engage in good risk-management strategies when involved in mining consulting work

In Australia, a professional has a legal duty to do their work to the reasonable standard expected of their profession. Where they are engaged as independent contractors and perform work without due care that results in loss or damage, they can be sued and held liable to pay compensation.

Who is a professional? Anyone who gives to another person advice and/or provides a service of a skillful character according to an established discipline is regarded as a ‘professional’.

Here we look at how a professional can protect themselves with a particular focus on their professional obligations and liabilities. This includes more than just insurance policy protection. The starting point is good risk management that includes your own understanding of the inherent risks in your work. Once certain risks are understood, and possibly reduced or removed, then insurance programs can be considered.

What risks do you have?

Like any individual contractor or business, you can have a vast variety of risks. Not all risks are insurable and should be understood and minimised where possible. But risk when understood and managed correctly can be a good thing. Managing your risks well can differentiate you from your peers and competitors as well as being a tool to help you succeed. Key risks can include:

  • meeting contractual obligations to clients
  • providing services with due care and skill
  • financial obligations to suppliers, subcontractors, debtors and staff
  • reputational damage
  • regulatory impacts/changes
  • other external factors, such as cyber (hacking) threats.

What insurance does a professional require?

Whilst there may predominately be a trend to focus primarily on professional indemnity insurance, perhaps due to a contractual requirement, there are other insurance products that a professional may consider. These include:

  • public and products liability
  • corporate travel
  • general property – portable electronics and other tools of trade
  • WorkCover
  • income protection (and life, disability and trauma)
  • If you are in a partnership, you can even insure to sell yours or purchase the other party’s stake in certain circumstances.

So, an insurance policy is a useful tool for protecting your interests (and your personal assets) where the risk is transferred to another party (the insurer) for an agreed premium. It can assist you in meeting your contractual requirements and provide you with the confidence to engage with your own clients knowing that at least this one risk has been looked after.

The protection professional indemnity insurance provides

The primary focus in this article is your professional indemnity (PI) risk. This is because it not only will be your key exposure – as it is directly attached to the services that you are providing – but also because the consequences of any action against you (even if you have ultimately not breached your duties or obligations) can be catastrophic. It is all too common for legal action settlements against contractors to reach into the multiple millions of dollars.

The PI policy is the first line of defence against any complaint. The insurer and broker will assist and advise on how to respond to any complaint or actual claim. In most circumstances, the insurer will offer to take over the defence of the claim as they have the expertise, along with any legal advisers they may engage with, to expedite any complaint to resolution in the most affordable manner.

What is a ‘good’ insurance policy?

These days, you should look for a policy that responds to civil liability claims. This means that the cover provided in the insurance policy will broadly protect you for any civil (law) liabilities and does not require a test of negligence in any complaint made against you. This is better than the alternative ‘acts or errors’ policy that would generally only respond where the loss needs to be shown to have directly resulted from a negligent breach in your duty of care. Civil losses can arise beyond a general duty of care, such as through allegations of misrepresentation or statutory breaches, and a civil liability policy is regarded as the better example of coverage as it focuses on the nature of the complaint rather than your direct actions.

Your policy should provide legal defence costs coverage, as well as cover for certain damages including compensatory fines or penalties. This can include any regulator imposed penalties for any occupational health and safety or environmental legislation actions.

Other key elements of a good PI policy includes:

  • cover for the company/family trust, principal and staff
  • protection for you arising from the conduct of any subconsultant/subcontractor
  • possible cover naming for subcontractor contractors
  • public relations cover and costs incurred at a regulatory inquiry
  • inadvertent infringement of copyright, patents or other intellectual property rights.

Austbrokers Countrywide can also look to tailor cover for the mining industry and in particular for AusIMM members, where we provide:

  • emergency defence costs
  • additional claims preparation costs
  • removal of pollution coverage restrictions
  • JORC cover – if necessary.

Are you the subcontractor?

Don’t assume you’re fully protected by the principal contractor. Even if you have contractual assurance from the principal contractor that they’ll look after you in certain situations, disagreements can always occur, along with practical inabilities to provide this protection. This can arise in various situations such as:

  • commercial disputes over the standard of the job
  • differing legal opinions by their lawyers or insurers
  • principal financial difficulties (bankruptcy, receivership and the like)
  • insufficient insurance coverage maintained by the principal (eg too many parties claiming onto the one policy)
  • basic inadvertent errors where you were left off an insurance policy.

Unfortunately, if insurance or indemnity provisions have not been agreed, then not only is it unlikely that you’ll have contractual or insurance relief (through the principal’s own cover), but the principal’s insurer may seek to recover from you, jeopardising your own personal assets.

Other important factors to consider and/or disclose to your insurers

Territorial and jurisdictional issues:

  • Is your client (or client of your client) overseas, but work done here?
  • What’s the difference between a site visit and actual ‘on the ground’ services?
  • What could this also mean for injury cover to you and others (eg WorkCover)?
  • Does your role extend to having a statutory responsibility such as acting as a mine manager, site senior executive, or even a superintendent role? These roles require understanding and acceptance by your insurers and may need particular assessment and policy coverage tailoring.
  • Be careful of certain other insurance policy traps, such as:
  • Have you fully disclosed all of your activities, including past and future services?
  • Are these activities also noted on your policy schedule?
  • Consider exclusions or coverage restrictions. Typical exclusion or restrictions include:
  • bodily injury exclusions
  • no cover to subcontractors directly or even to you for their work
  • high-risk activities – eg underground work
  • contractual agreements or limitation/capping of liabilities
  • resource valuations/estimations
  • pollution exposure exclusions (escape of liquids, gasses, ground water, etc).

Accordingly, it is vitally important that you don’t rely on ‘off the shelf’ insurance products, especially online providers who offer no advice and use a ‘few questions asked’ model as a selling point.

The purchase of a suitable PI policy will provide you with: protection of your assets, peace of mind, will assist you in meeting contractual obligations, and provide commercial confidence and can assist with job tendering.

Finished a job or retiring?

When you stop working (permanently or to a particular job), consideration should be given to the ongoing liabilities you can have.

PI insurance is provided on a ‘claims made’ basis, which means that you require active insurance at the time a claim (or complaint) is made against you. If the policy is allowed to lapse or cease and a claim is made against you after the lapse date, the insurer will not be required to indemnify you. So if you have retired or merely finished a particular job, ongoing insurance should be considered. If you’ve retired, this is called ‘run-off’ insurance.

How long should you keep buying insurance? Sometimes the duration is stipulated within a previous contract. Otherwise, the general rule of thumb is seven years (working to the statute of limitations), but run-off insurance can be purchased either annually (year on year) or as a multi-year one-off policy. The good news is that the cost of the insurance diminishes as you move further away from the past work.

Aside from retirement, if you’ve maintained particular (additional) cover to meet a contractual requirement, this should also be considered after the job is complete. Did you increase your sum insured or extend cover to a subcontractor for a particular job? Be mindful of your future obligations to indemnify in accordance to these agreements.

Case studies – how professional indemnity insurance has worked to protect business and individuals

Consulting metallurgist – inaccuracy in feasibility study

A consulting metallurgist was contracted to prepare information as to the feasibility of a gold mine in Asia. Samples were taken on site and brought back to Australia for testing. The claim related to a selection of samples bringing about inaccuracies in the feasibility study due to an error in merging of logs in an excel spreadsheet. Errors were made with the incorrect oxidation codes applied to the samples taken.

Rectification required returning to site to conduct the tests again. This meant that half of the tests needed to be re-run, and costs included having the tests taken again on site and air-freighting the new samples to Melbourne for retesting. This resulted in project overrun delays and further costs for the additional testing. This simple error cost over $100 000 as the rectification process included investigation, administration, legal advice and payment for re-doing the samples and testing.

Non-disclosure of project management responsibilities

Our insured was involved in designing tank foundations and piping systems at a petroleum site. There were separate parties performing the design, construction and painting services. The painting was delayed because of bad weather, and the roof of the tank collapsed due to internal pressure that built up as the tank vent’s temporary sock (wet filter bag) remained in place, rather than being removed as necessary. The insurer’s view was that the claim did not result from negligent engineering, but rather project management services that were not declared as a risk performed by the insured. After significant negotiation the insurer agreed to a proportionate settlement of approximately 60 per cent of the total claims costs of $3 million.

Fines and penalties under Acts – example one

A death on site resulted from a fatal impact within the articulation joint of a loader. Investigations revealed the incident occurred primarily due to inadequate training and subsequent lack of safety procedures. Proceedings commenced, alleging a failure to provide a safe system of work against the site supervisor, contractor and mine operator. The site supervisor plead guilty to failing to provide adequate supervision in the form of training of staff in the appropriate use of the safety mechanisms. His professional indemnity policy had a fines and penalties extension to $250 000 and under the act he received a fine of $90 000, which was covered by insurance.

Fines and penalties under Acts – example two

A tailings dam leaked at an iron ore mine and polluted nearby fields used for grazing cattle. The qualified mining engineers who operated and maintained the tailings dams were fined under the Protection of the Environment Act NSW 1997. Land pollution is prohibited under section 142A and is a Tier 2 offence. There had been very slight movement in a section of the dam wall constructed of rock covered with clay and other earth and this was not actioned in an appropriate time frame. An increased volume of iron ore extracted in one month increased the tailings and put increased pressure on the wall. Fortunately, the tailings professionals had professional indemnity insurance in place, which had a fines and penalties extension to $250 000 and under the Act the company received a fine of $190 000.

An important side note here is that not all insurance policies will provide broad fines and penalties cover. AusIMM’s policy provides the widest possible coverage for any occupational health and safety or environmental legislation penalties from regulatory authorities as well as other compensatory civil penalties that may be applied.

Consider your risks

We recommend that you consult an experienced insurance broker who has their own expertise and experience in the field that you operate in. As mentioned, there are many considerations beyond the mere purchase of an insurance policy. Consideration of each of these matters will place you in a much better position to allow you to then focus on your own client’s needs.

Get in touch with us

If you would like any further information or have any queries please contact Austbrokers Countrywide on 1800 245 123 or 9835 1300, email ausimm@abcountrywide.com.au or visit www.abcpro.com.au/ausimm.

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