An international organisation that provides professional services faces additional liability risks, which are not covered by standard general liability insurance policies.
Today most multinational organisations understand well their general liability obligations for personal injury and property damage and how to manage these risks efficiently across the organisation’s global footprint.
This is usually accomplished by implementing multinational insurance programmes that use a combination of master and local policies, and other features.
However, if your multinational organisation provides professional services, it will typically face an additional category of liability risks, which can result in claims for negligence, misrepresentation or breach of duty – none of which are included in standard general liability insurance policies.
These more specialist risks can be included in professional indemnity insurance policies.
So what are the main considerations professional services firms should take into account when structuring a global insurance programme?
- It is important to understand local insurance laws apply equally to primary and excess insurance, whether purchased at the parent/headquarter level or otherwise.
- While certain structures – such as overseas excess/difference-inconditions/difference-in-limitations towers combined with local policies – provide the highest level of coverage certainty, they have limitations when not designed appropriately. Questions about local defence and indemnity payments should be at the forefront of any discussion to manage performance expectations.
- When entering into local contracts, it is important to determine what the local limits expected by counterparties are for conducting business or what the limits purchased by local organisations are when conducting similar business. This means when drafting coverage clauses for primary or excess policies or when providing local certificates of insurance, multinational organisations (and their risk and insurance managers, their brokers and insurers) should take care in adopting wording that avoids redefinition, unavailability of limits locally and other undesired consequences.
- It is important to collaborate with a broker and insurer that have truly international expertise and servicing capabilities, as well as with internal and external tax, finance and legal specialists. This combination enables the parties to work together to plan and document a clear risk financing strategy that is complemented by an appropriate transfer of risk, and to ensure the multinational insurance programme achieves performance certainty.
Some important questions to ask when designing a multinational professional indemnity programme are:
- What is the legal status of each of the entities in our global organisation?
- What professional services do we provide? Do we provide the same professional services in each of the countries where we operate or do these differ from country to country?
- What are the legal requirements for professional indemnity insurance in our home country and in each of the other countries in which we offer services?
- Should we choose a globally integrated multinational professional indemnity insurance programme or is a standalone, country-by-country insurance programme best for us?
- Is an integrated global professional indemnity programme possible given the countries in which our organisation operates?
- If we choose a standalone professional indemnity programme, rather than a multinational programme, what are the challenges in managing consistency of insurance coverage, claims and cashflow?
- If we choose an integrated solution, does our corporate legal status allow us to manage the procurement of insurance on behalf of all of our entities worldwide?
- How do we ensure appropriate local limits and implement the most robust umbrella/excess protection at the parent level?
- How will our umbrella/excess policy respond when a local policy does not insure a claim? Where will claims be paid?
- If our organisation is indemnified at the parent level for a claim made against it in a local country, what issues must we consider when we remit the claims proceeds to that local country?
Being prepared and having answers to these questions will help to ensure your professional services firm is adequately covered.