Wholesale changes are rarely imposed by the Institute of Chartered Accountants in England and Wales (ICAEW), but they do seek to update the minimum terms to react to market pressures and changes in legislation. Changes were introduced on 1 October 2018 to ensure that the wording continues to reflect the changes in work practices being carried out by financial practitioners.
The primary aim of the ICAEW in enforcing and maintaining a minimum policy wording is the protection of the public. As a regulator the ICAEW has a difficult balancing act; they must have commercial considerations in mind. If they make terms too onerous, qualifying insurers may withdraw from the market leaving the remaining insurers unable to offer affordable premiums.
Although 41 paragraphs have been amended in the new wording, the majority of the amendments are stylistic and/or clarifying adaptations. There are however, some relevant changes which it is important for both insurers and insureds to be aware of:
The main insuring clause provides cover for any civil liability in connection with Professional Business. The definition of Professional Business has been widened in two respects:
- To include “other business activities” in addition to “advice” and “services”.
- Expressly includes: “the provision, sale, licence, lease, amendment or adaptation of any computer software, hardware, solution, package or publication”.
These changes are not surprising given the technological advances in the world of accountancy and the pressure upon accountants to diversify their practices where their day to day work is on the verge of automation.
There is a good news amendment for insurers: the effective seven day extension to the policy period has been removed and replaced with a straightforward requirement for the insured to give insurers notice in writing as soon as reasonably practicable of any claim, suspicion of dishonesty or fraud, or circumstance.
USA/ Canada exclusion
The ICAEW minimum terms provide worldwide coverage, with the exclusion of Professional Business which is carried out from an insured’s office in USA or Canada, or claims which are the subject of proceedings brought in any court of the USA or Canada arising from an office of the insured which is not located there.
There is one exemption to the USA/Canada proceedings exclusion which has been introduced by the new terms: the USA/Canada exclusion shall not apply if there was no reasonable basis for the insured to believe or suspect that there was any prospect of such proceedings arising from the Professional Business carried out.
There are numerous limitations placed on the cover for this exemption to protect insurers in respect of any claims which could arise, for example, the limit of indemnity becomes defence costs inclusive and the insurer will not be liable to pay any punitive or exemplary damages. It remains to be seen whether this extension to the cover of the minimum terms will be significant.
Non-compliance with policy conditions
If the insured’s breach or non-compliance with a condition of the policy has resulted in prejudice to insurers in settling the claim or in obtaining reimbursement from a dishonest or fraudulent person, the indemnity will be paid direct to the claimant and the insured will reimburse insurers in respect of any amount which would not have been payable, in the absence of such prejudice.
Insurers’ powers have been tempered slightly as previously they were entitled to recover an amount which, in insurers’ reasonable option, would not have been payable in the absence of such prejudice. Insurers will now need to establish on the balance of probabilities what the extent of the prejudice suffered equates to in monetary terms. This may lead to insurer/ insured arbitrations under the minimum terms if agreement cannot be reached.
The changes introduced by the October 2018 update to the minimum terms are not extensive, and in the main reflect the commercial reality of accountants’ practices. However, by virtue of the difference in conditions clause, they will be automatically incorporated into all ICAEW professional indemnity policies and it is clearly important that all affected by the amendments are aware of the same.