This article is the seventh in a series of 50 policy reviews Professional Indemnity Insurance (PI) that dissects the contents of the policy in detail so you don’t make mistakes in managing risk. This time, our focus is on the limit of liability—the maximum compensation provided by an insurance company. Many professionals consider the limit to be just a number on paper, but misunderstanding the limit mechanism can result in claims worth billions of rupiah not being paid in full. This article was written by Mhd. Taufik Arifin ANZIIF (snr.assoc) CIIB, an insurance broker with over 40 years of experience, who has helped many professionals understand and negotiate PI policy limits to truly suit their needs.
Why Limit of Liability is So Important
In a Professional Indemnity (PI) policy, the term “limit of liability” is the heart of the protection. This limit represents the maximum amount the insurance company will pay when a claim occurs. Without proper understanding, many professionals fall into the illusion that having a PI policy automatically covers all losses. In fact, the amount of compensation received is always limited by the limits stated in the policy.
Why is this important? Because lawsuits in the professional world are often extremely costly. For example, a doctor could be sued for 10 billion Rupiah for alleged malpractice, or an auditor could be accused of negligence, causing investors tens of billions of Rupiah in losses. If the policy limit is only 5 billion Rupiah, the insured must cover the remaining losses. This means that choosing the wrong limit could lead to financial and reputational ruin.
Furthermore, many PI policies use an aggregate limit system—meaning the total claims during the policy period cannot exceed a certain amount. So, even if you have multiple claims, the insurance company will only pay up to the aggregate limit. If the limit is exhausted on the first claim, subsequent claims will not be paid. This is a trap that many professionals often fail to recognize.
Furthermore, legal fees or defense costs are often included in the limit. However, in practice, litigation costs can reach billions of rupiah, even before the case is decided. If legal fees consume a significant portion of the limit, the amount remaining to pay damages will be significantly reduced.
Therefore, understanding limits isn’t just about numbers, but also about a protection strategy. Selecting the right limits will ensure your PI policy truly serves as a shield when you face a major lawsuit.
Types of Limits in Police PI
In a Professional Indemnity (PI) policy, the limit of liability isn’t just a single number. Insurance companies use various mechanisms to determine the extent of their liability in the event of a claim. Understanding these limits is crucial to avoid misjudging your coverage.
- Per Claim Limit
This limit type determines the maximum amount payable for each claim. For example, if the policy has a per-claim limit of IDR 5 billion, each claim will be covered up to that amount. However, if the claim is worth more, the insured must cover the difference.
- Aggregate Limit
In addition to per claim, PI policies typically also include an aggregate limit, which is the maximum total claim amount that can be paid during a single policy period (usually one year). For example, if the aggregate limit is IDR 10 billion, then all claims combined within a year cannot exceed that amount. Once the limit is reached, subsequent claims are not covered, even if the policy remains in effect.
- Reinstatement of Limit
Some policies offer a reinstatement of limit facility, which restores the limit after the initial limit is exhausted due to a claim. This facility is particularly useful for professions with a high risk of repeated lawsuits, such as legal consultants, doctors, or contractors. However, reinstatement usually incurs an additional premium.
- Defense Costs (Legal Costs)
One crucial factor is how the policy treats legal costs. Some policies include legal costs within the limit (inclusive), while others cover them outside the limit (exclusive). If inclusive, litigation costs can reduce the amount of compensation available. Conversely, if exclusive, legal costs are covered separately and do not reduce the primary compensation limit.
- Sub-Limits
In addition to the primary limit, a PI policy may also have sub-limits for specific risks, such as cyber liability, libel & slander, or claims from specific parties. These sub-limits are often significantly lower than the primary limit, so it’s important to consider whether they align with your risk profile.
The types of limits above demonstrate that liability limits aren’t just numbers, but rather systems that significantly determine the effectiveness of protection. Without the assistance of a broker, many professionals simply see the large numbers on the policy summary without understanding the detailed mechanisms.
Risk of Misunderstanding the Limit
Many professionals purchase Professional Indemnity (PI) policies simply by looking at the large limit on the front page, without understanding the details of the policy. However, misinterpreting the liability limit can have disastrous consequences, both financially and for your reputation.
One of the biggest risks is that claims are not fully paid. For example, an auditor has a policy with a limit of Rp 5 billion per claim. When sued for Rp 12 billion, the insurance company only pays Rp 5 billion, the limit, leaving the remaining Rp 7 billion to cover. This often comes as a surprise to professionals who assume all claims will be fully covered.
Another risk is that the aggregate limit is exhausted too quickly. Many PI policies use an annual aggregate limit system. This means that if you face two major lawsuits in the same year, the second claim may not be covered because the limit has already been exhausted by the first claim. Without this understanding, many firms face bankruptcy despite believing they have PI policies.
Furthermore, including legal fees within the limit (inclusive) can also be a trap. Imagine if legal and litigation fees reached Rp 2 billion out of a total limit of Rp 5 billion. Then, only Rp 3 billion would be left to cover damages, even though the lawsuit could be much larger.
Misunderstanding limits can also damage a professional’s reputation. Clients will feel cheated if they discover the promised protection is inadequate. Worse yet, your profession could lose market trust.
Therefore, understanding the limits in your PI policy is not just an administrative matter, but a strategy to protect the continuity of your business.
Short Case Study
To further clarify how the limit of liability plays a significant role in a Professional Indemnity (PI) policy, here are three real-life case studies that illustrate the impact of misunderstanding this clause.
- Law Firms with Claims Exceeding Limits
A law firm in Jakarta handled a high-value business case. Unfortunately, an administrative error resulted in the client seeking Rp 20 billion in damages. The firm had a PI policy with a per-claim limit of only Rp 10 billion. As a result, the insurance company only paid half of the claim, leaving the remaining Rp 10 billion to cover. The firm nearly lost operations due to a lack of such substantial reserves. Had they engaged an experienced broker from the outset, the policy limit could have been negotiated more appropriately for the scale of the case.
- The Forgotten Architect and Aggregate Limit
An architectural firm in Surabaya experienced two major claims in one year. The first claim, worth Rp 7 billion, was fully covered because the policy limit was Rp 10 billion. However, a few months later, they were sued again for Rp 6 billion by another client. The second claim was denied because the PI policy used an annual aggregate limit of Rp 10 billion—meaning the total claim payments for the year could not exceed that amount. The architects were shocked, believing they still had sufficient coverage per claim, even though the aggregate limit had already been exhausted. This misunderstanding nearly caused the firm to go bankrupt.
- IT Consultants and Legal Fees That Eat Up Your Limit
An IT consulting firm in Bandung was sued by a foreign client because the application system they created failed to protect customer data. The lawsuit amounted to Rp 8 billion. The IP policy they owned had a limit of Rp 8 billion, but legal fees were included in the limit. The lengthy litigation process cost Rp 3 billion in legal fees. As a result, only Rp 5 billion remained to pay the claim. The client continued to demand the remaining Rp 3 billion, forcing the IT consultants to sacrifice personal assets to cover the losses. If they had chosen a policy with…clausedefense costs outside the limit, the entire Rp 8 billion can be used in full for compensation.
These three case studies demonstrate that liability limits are more than just formal numbers in a policy. Misunderstanding the limit system can lead to significant losses, even destroying a business that has been built over many years.
This is why an experienced insurance broker is so important. A broker not only helps select limits appropriate to the risk, but also ensures that clauses such as aggregate limits, reinstatement of limits, and defense costs truly favor the insured.
With the support of a broker like L&G Insurance Broker, professionals can run their business more calmly without fear of making mistakes in understanding PI policy limits.
The Role of Insurance Brokers
Understanding the liability limits in a Professional Indemnity (PI) policy is not simple. The seemingly large numbers on the policy page are often deceptive, as the limit mechanisms can be much more complex: there are limits per claim, aggregate limits, inclusive legal fees, and even sub-limits for specific risks. Without a thorough understanding, a PI policy could fail to protect you when a lawsuit worth billions of rupiah arises.
This is where the role of an experienced insurance broker becomes very important.Insurance Broker help:
- Analyze your risk profile, whether you are a doctor, lawyer, architect, auditor, or IT consultant, then determine the most appropriate limit.
- Explains the different types of limits in simple language so you really understand what is covered.
- Negotiatingimportant clauses such as reinstatement of limit or defense costs outside the limit, which can save your business when facing repeated lawsuits.
- Accompanying the claims process, ensuring that the insurance company does not use limit details to minimize payment obligations.
In Indonesia, L&G Insurance Broker has been trusted by various professions and companies for over 30 years. L&G not only prepares internationally standardized insurance policies but also ensures that the selected limits are realistic and adequate.
👉Don’t let the high numbers on your policy fool you. Ensure your PI limit is truly effective with the help of an L&G Insurance Broker.
Conclusion
From this discussion, it’s clear that the limit of liability is the heart of a Professional Indemnity (PI) policy. The limit isn’t just a big number on the policy page; it’s the mechanism that determines how far your coverage extends. Misunderstanding the difference between a per claim limit and an aggregate limit, or not considering whether legal fees are included in the limit, can have dire consequences. It’s not uncommon for claims worth billions of rupiah to go unpaid in full simply because of overlooked technical details.
Therefore, selecting and understanding limits is not something to be done carelessly. It requires a thorough analysis of the risk profile, project value, and potential future lawsuits. This is why the assistance of an experienced insurance broker is essential. A broker not only explains the policy in simple language but also negotiates important clauses that are often overlooked.
In Indonesia, L&G Insurance Broker has helped numerous professionals—doctors, architects, IT consultants, auditors, and even law firms—obtain PI policies with appropriate and truly effective limits. With over 30 years of experience, L&G is known as a broker capable of safeguarding clients’ interests, both when purchasing policies and when filing claims.
👉Don’t let misunderstanding your limits ruin your career and business. Contact L&G Insurance Broker today to ensure your IP policy is fully operational when a lawsuit comes your way.
—
DON’T WASTE YOUR TIME AND SECURE YOUR MINING FINANCIAL AND BUSINESS WITH THE RIGHT INSURANCE.
HOTLINE L&G 24 JAM: 0811-8507-773 (CALL – WHATSAPP – SMS)
Website: lngrisk.co.id
Email: halo@lngrisk.co.id
—
