This article is part of a series of 50 policy reviews of Professional Indemnity Insurance (PI) thoroughly analyzing the policy contents so you can understand the comprehensive coverage. This time, we’ll discuss the Excess Insurance Clause, which governs how a PI policy works when there’s an additional policy (excess layer) to expand the coverage limit.
This article was written by Mhd. Taufik Arifin ANZIIF (Snr. Assoc) CIIB, an insurance broker with over 40 years of experience. With L&G Insurance Broker, you’ll understand how excess insurance can be a smart strategy for protecting your business from major lawsuits that exceed standard policy limits.
Contact L&G Insurance Broker now at 08118507773 for a free consultation before the risks haunt your business.
Definition & Function of Excess Insurance Clause in PI Policy
In a Professional Indemnity (PI) policy, there’s a crucial clause known as the Excess Insurance Clause. This clause arises when the insured has more than one policy, particularly an additional policy or excess layer insurance, which aims to increase the liability limit above the primary policy. In other words, if a lawsuit exceeds the coverage limit of the first policy, the excess policy will cover the difference.
The primary function of this clause is to ensure clear coordination between policies, preventing overlap or confusion when a large claim is filed. Excess insurance only applies if the basic policy limit has been exhausted. For example, if the primary policy provides coverage up to IDR 20 billion, and the claim reaches IDR 50 billion, the excess policy can cover the excess IDR 30 billion.
This clause is particularly important for professions or companies facing the potential for large-scale lawsuits, such as law firms, financial consultants, multinational construction companies, or public auditors. Without excess insurance, financial risk can destroy a business’s reputation and continuity.
However, it’s important to note that each policy has different wording regarding how excess coverage applies. Some require the primary policy to be valid and in full force and effect, while others stipulate specific exclusions for the excess coverage. This is where an experienced insurance broker like L&G Insurance Broker plays a crucial role. L&G helps structure your PI policy with the right combination of base limits and excess coverage, negotiates competitive premiums, and ensures you’re optimally protected from the risk of a major lawsuit.
Case Study of Implementation of Excess Insurance Clause
Case 1: International Law Firm in Jakarta
A large law firm dealing with multinational clients faced a Rp 150 billion lawsuit due to a contractual misinterpretation. Their primary IP policy only covered up to Rp 50 billion. Fortunately, the firm had prepared an excess insurance policy of Rp 100 billion. When a claim was filed, the primary policy paid the first Rp 50 billion, while the excess policy covered the remainder. Without this strategy, the law firm could have lost a crucial asset and its reputation in the international market.
Case 2: Construction Consultant in Surabaya
A construction consulting firm was accused of negligence in structural calculations for a high-rise building project.Clientdemanded Rp 80 billion in compensation. The company’s basic PI policy only covered up to Rp 30 billion. Unfortunately, they didn’t have an excess policy. As a result, they had to cover Rp 50 billion from the company’s cash, ultimately forcing them to undertake extensive restructuring. This case demonstrates the high cost of relying solely on a basic policy.
Case 3: Public Auditor in Singapore
An international auditing firm was sued by a client for failing to detect fraud in its financial statements. The claim amounted to SGD 40 million. The firm had a basic PI policy of SGD 10 million and an excess policy of SGD 30 million. When the claim was submitted, the process went smoothly because the policy wording was clearly defined by their broker. All claims were fully covered, and the firm was able to maintain its operations and credibility in the global market.
Lessons to be Learned
- Excess insurance is additional coverage, not a replacement for the main policy.
- The limit structure must be realistic according to the potential business risks, not just based on cheap premiums.
- Brokers play a vital role in putting together a combinationpolicybasis and excess so that there are no legal loopholes when making a claim.
The Role of L&G Insurance Broker
As a broker with over 40 years of experience, L&G Insurance Broker helps many companies in Indonesia develop PI policies with a balanced combination of basic limits and excess insurance. With L&G’s expertise, you can get optimal protection, competitive premiums, and the assurance of fair and transparent claims processing.
Conclusion & Recommendations
The Excess Insurance Clause is one of the most strategic elements of a Professional Indemnity (PI) policy. This clause provides an additional layer of protection when the value of a lawsuit exceeds the basic policy limit. With excess insurance, professionals and companies can feel more secure in facing the risk of large-scale lawsuits, which are becoming increasingly common in the era of globalization.
Real-life cases demonstrate that without an excess policy, a company could face bankruptcy due to a single large claim. Conversely, companies that properly structure their coverage—combining a basic policy and excess insurance—can survive lawsuits worth hundreds of billions of rupiah.
However, excess insurance isn’t simply about purchasing an additional limit. The clauses can vary: some apply only if the basic policy is fully valid, while others stipulate certain exclusions. Without a thorough understanding, the insured could be trapped with an excess policy that isn’t truly effective.
This is where an experienced insurance broker like L&G Insurance Broker plays a crucial role. With over 40 years of experience, L&G understands international best practices in structuring PI programs, including multi-layer insurance designs with excess coverage. L&G will ensure:
- Limits are set according to the client’s risk profile.
- The main and excess policy clauses are aligned without conflict.
- The claims process is transparent and fair when a risk occurs.
Recommendation:
Don’t wait until a major lawsuit hits your business. Discuss with an L&G Insurance Broker to design the right IP protection structure, including the use of an Excess Insurance Clause, to ensure your business is fully protected against any eventuality.
DON’T WASTE YOUR TIME AND SECURE YOUR FINANCIAL AND BUSINESS WITH THE RIGHT INSURANCE.
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