This article is part of a series of 50 Professional Indemnity (PI) Insurance policy reviews that unpack every detail of the policy so you can fully understand the coverage it offers. In this twelfth article, we’ll discuss the Territorial & Jurisdiction Clause—the clause that determines the jurisdiction in which the PI policy applies and the legal jurisdiction used in claims settlement.
This article was written by Mhd. Taufik Arifin ANZIIF (snr.assoc) CIIB, an insurance broker with over 40 years of experience. To ensure this clause doesn’t become a trap that harms your business, use the services of L&G Insurance Broker, your trusted partner in developing the best PI policies.
Territorial & Jurisdiction Clause in PI Insurance
One of the often overlooked clauses in Professional Indemnity (PI) policies is the Territorial & Jurisdiction Clause. However, this clause significantly determines the extent of your policy’s coverage.
A territorial clause limits the geographic area in which the insured risk is recognized. For example, a consulting firm in Indonesia may be covered for work performed in Southeast Asia, but not automatically protected if it accepts a project in Europe or the United States.
Meanwhile, the Jurisdiction Clause regulates which country’s law applies in the event of a dispute or lawsuit. This is crucial, as legal costs in developed countries like the United States or the United Kingdom can be substantial, often far exceeding the value of the project contract itself. Without a proper clause, your claim could be dismissed outright based solely on jurisdictional issues.
Many companies in Indonesia underestimate this clause when undertaking cross-border projects, despite the significant consequences. Incorrectly selecting a jurisdiction could render your IP policy useless in the event of a lawsuit.
This is where an experienced insurance broker like L&G Insurance Broker becomes crucial. With over 40 years of experience, L&G understands both international standards and local regulations. Brokers will help negotiate a Territorial & Jurisdiction Clause tailored to your project profile and operational area, ensuring your PI policy truly protects your business, not just a formality.
Don’t let your policy be just paper—make sure every clause works in your favor.
Would you like me to add a real case example of a company that suffered losses due to mismanaging this clause?
Territorial & Jurisdiction Clause in PI Insurance: Comparison of Europe, United States, Singapore, and Indonesia
In Professional Indemnity (PI) policies, the Territorial & Jurisdiction clause often determines whether a claim will be paid or denied. This clause regulates two important matters: where the coverage applies (territoriality) and which country’s law has jurisdiction over the claim (jurisdiction). Differences in approaches between countries make this clause even more crucial for professionals and companies in Indonesia to understand.
- Europe: Harmonization and Broad Protection
In the European Union, insurance regulations are relatively harmonized through strict legal standards. Many IP policies are valid across Europe, so consultants or architects working across borders still receive protection. However, jurisdiction is usually subject to the laws of the country where the claim is filed. This means that if an Indonesian company is working on a project in Germany or the Netherlands, the dispute will be resolved under the laws of that country—which are known to be strict and pro-consumer.
- United States: The Greatest Risk in the World
The United States is known as the country with the highest litigation rate in the world. Multimillion-dollar lawsuits are commonplace, particularly in the medical, legal, and construction sectors. This is where IP policies with jurisdiction clauses covering the US become prohibitively expensive. Many insurance companies even refuse to provide coverage with US jurisdiction due to the potential for significant claims. If an Indonesian company accepts a project in the US without considering this clause, it could face bankruptcy just because of a single lawsuit.
- Singapore: An International Hub with Strict Regulations
As an international business hub in Asia, Singapore implements modern and efficient legal standards. Many multinational companies choose Singapore as their location for dispute resolution. If your IP policy lists Singapore Jurisdiction, your case will be decided under Singapore’s legal system, which is renowned for its speed but can be expensive. Singapore is often chosen as a compromise by international parties due to its perceived neutrality, professionalism, and trustworthiness.
- Indonesia: Tends to be Limited and Local
In contrast, many IP policies in Indonesia still list the territorial term as “Indonesia” and the jurisdiction as “Indonesian law.” This is certainly cheaper in terms of premiums, but it can significantly limit coverage. For example, an Indonesian consultant working on a project abroad risks being completely unprotected if a lawsuit is filed in another country.
TableComparison of Territorial & Jurisdiction Clauses
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The Importance of an Experienced Insurance Broker
This difference in practice demonstrates the complexity of Territorial & Jurisdiction clauses. Without a thorough understanding, companies can purchase policies that turn out to be invalid in the country where the project is being carried out.
This is where L&G Insurance Broker comes in. With over 40 years of experience, L&G can tailor this clause to your needs: whether you need regional (ASEAN), international, or simply domestic coverage. L&G also has an international network to ensure your PI policy meets global standards while remaining economical.
A company that ignores the Territorial & Jurisdiction Clause is like building a house without a foundation. The policy may appear complete, but it could collapse when a lawsuit arises. With the support of a professional insurance broker like L&G, you can ensure your PI policy truly protects your business, not just a formality.
Real Case Example: Incorrectly Determining Territorial & Jurisdiction Clauses
An Indonesian engineering consulting firm was awarded a project contract in Malaysia to design a city drainage system. They felt secure because they had a Professional Indemnity (PI) policy purchased in Indonesia. However, they unknowingly discovered that the policy was only valid within Indonesian territory, subject to Indonesian legal jurisdiction.
As the project progressed, a serious problem emerged: the drainage system was deemed to have failed, causing extensive flooding in the business district. The client in Malaysia sued the consulting firm in a Kuala Lumpur court for Rp 20 billion.
Unfortunately, the insurance company denied the claim. The reason was clear: the PI policy was only valid in Indonesia and did not cover lawsuits abroad. As a result, the company was left to bear the exorbitant costs of international litigation, plus potential damages that would have severely impacted their financial situation.
This case demonstrates the importance of properly drafting a Territorial & Jurisdiction Clause. If the company had used an experienced broker like L&G Insurance Broker from the outset, the clause could have been negotiated to cover the ASEAN region, including Malaysia. This way, claims would still be handled by the policy, and the company would have avoided significant losses.
Conclusion
From the discussion above, it is clear that the Territorial & Jurisdiction Clause is one of the most important components of a Professional Indemnity (PI) policy. This clause determines the geographical extent of coverage and the applicable country’s laws in dispute resolution. Differences in practice between Europe, the United States, Singapore, and Indonesia demonstrate significant variations in costs, risks, and the protections provided.
Many companies in Indonesia fall into the trap of not understanding the limitations of this clause. As a result, their IP policies are only valid domestically, while projects and potential lawsuits originate abroad. This situation renders protection ineffective when real risks occur.
Recommendation
To avoid fatal errors, companies must:
- Understand the scope of the project – ensure the PI policy covers the area where the business operates, including overseas projects.
- Determine the appropriate legal jurisdiction – choose a country law that is not burdensome and realistic in terms of litigation costs.
- Use the services of an experienced insurance broker – such as L&G Insurance Broker, who can negotiate these clauses appropriately according to business needs, international standards, and local regulations.
Remember, a PI policy isn’t just a formality; it’s your business’s primary defense against lawsuits worth billions of rupiah. Ensure the Territorial and Jurisdiction clauses are professionally drafted to ensure the policy truly protects you, not just serves as a meaningless piece of paper.
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