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Professional Negligence and Liability

Chapter 5 THE INSURANCE OF PROFESSIONALINDEMNITY RISKS I. INTRODUCTION 1. PI insurance 5.1 Professional indemnity (PI) insurance is a type of liability insurance whereby liabilities of the kind dealt with in subsequent chapters of this work are the subject of insurance cover. For many professionals the financial consequences of legal liability may be so disastrous that the cost of PI insurance is an acceptable burden. 1 This is particularly true of professionals whose liability is unlimited. For many professionals it is an unavoidable burden as they are required to take out PI insurance as a condition of being allowed to practise. 2 A wide variety of insurance schemes exist. One is mutual insurance. Another is the formation of captive companies in jurisdictions where there is a low level of taxation. Although strictly speaking the company is a legal entity separate from the professionals who set it up, this scheme, like that of the mutual is commonly regarded as a form of self-insurance insofar as the professionals bear both the cost of the company itself and of paying claims. Even so, most PI insurance schemes, including mutual and captives, at some point involve the insurance market at large. The Appendix to this chapter contains examples of PI policies, mostly from the market. The selection is short. It is intended to illustrate types of policies and they are referred to in this chapter to highlight significant features of PI insurance.

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