Important Fact #3 - Professional Indemnity Insurance 12/03/2015
Excess - Costs Exclusive vs Costs Inclusive
A claim may involve:
- Costs and expenses incurred to investigate, defend, settle or appeal the claim;
- Compensation to the third party in order to re-design, rectify, repair, rebuild, reimburse consequential loss, etc.
A policy excess or deductible is the portion of the claim that you, the Insured, will have to pay. The policy excess will be costs exclusive or costs inclusive.
A costs exclusive excess does not apply to the costs incurred by the insurer or by you (with the insurer’s permission) in the investigation, defence or settlement of the claim. The excess only applies to the compensatory amount.
This means that if the claim against you is successfully defended by your insurer and only costs incurred, you will not be required to pay the policy excess.
This is sometimes described in the insurance market as a “No Fault” policy, which is a bit misleading as you may not be at fault, but your insurer may decide to pay an amount of compensation to the third party as the most cost-effective way of resolving the matter.
The costs exclusive excess is particularly useful to builders, who engage external consultants to provide professional services. If a claim is made, the builder’s insurer will usually join or re-direct the claim to the consultant with a view to the consultant’s Professional Indemnity insurer paying any compensatory amounts to the third party. In this instance, only costs would be incurred by the builder’s insurer.
Some (but not all) insurers charge an additional premium for a costs exclusive excess, while others do not offer it at all.
The costs inclusive excess is more common and applies to all elements of the claim – costs and compensation. The insurer will only pay amounts above the policy excess.
The type of policy excess that applies to your policy may be clearly stated in the policy schedule or specified in the policy wording.
If you need help understanding your policy or require a policy with broader cover, please do not hesitate to contact our office.