This article is the sixth in a series of 50 insurance policy analysis articles Professional Indemnity (PI) that discusses the contents of the policy thoroughly and in depth. In this section, we will focus on exclusions in PI policies—a section that is often overlooked but is the main reason for claims being rejected. Many professionals purchase policies without reading the details of the exclusions, even though a single point can impact billions of rupiah in the event of a lawsuit. 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 clients understand and negotiate exclusions so that PI protection truly works optimally.
Why Exclusions Are So Important to Understand
In Professional Indemnity (PI) policies, the exclusions section is often the deciding factor in whether a claim is paid or denied. Unfortunately, many professionals only pay attention to the premium, limits, and policy period, but rarely read the details of the exclusions. As a result, when a lawsuit comes, they are surprised to find that the claim falls under the exclusions and is automatically not covered.
Exclusions essentially limit the insurance company’s liability. This section outlines risks that will not be covered, even if the policyholder reasonably believes the loss is related to their professional work. For example, criminal acts, deliberate acts, fraud, or purely contractual obligations are typically excluded. If a professional is caught in a case of deliberate fraud, the insurance company will not cover the claim, even if they have a PI policy.
Why is this important? Because many claims are legally valid, but they fail to be processed because the insured doesn’t understand the exclusions. A simple example: an architect is sued for building damage. The PI policy only covers professional negligence in design, not physical damage to the property. If the architect doesn’t understand this, the claim could be denied, ruining their reputation.
In other words, exclusions aren’t just “additional notes” in a policy, but rather a clear line that separates covered and uncovered risks. Understanding exclusions from the outset will prevent future disappointment and help professionals develop appropriate risk management strategies.
Common Types of Exclusions in Police PI
Every Professional Indemnity (PI) policy has a list of exclusions that limit the insurance company’s liability. Understanding this section is crucial so you know which risks are truly covered and which must be managed independently. Here are some common types of exclusions in PI policies:
- Criminal or Intentional Acts
A PI policy will not cover losses arising from intentional or unlawful acts. For example, if a professional is found guilty of a crime or fraud, the claim will not be paid.
- Fraud and Dishonesty
Any form of fraud, deception, or dishonest act by the insured or their employees is excluded. However, some policies extend coverage to employee fraud committed without management’s knowledge.
- Pure Contractual Obligations
If a claim arises solely from contractual obligations without professional negligence, it is usually excluded. This means that the PI policy covers the consequences of professional error, not the failure to fulfill the terms of the contract.
- Physical Loss and Bodily Injury
In general, a PI policy does not cover losses in the form of physical damage to property or bodily injury, unless they arise directly from professional negligence. Public Liability or Property All Risks policies are typically used for these risks.
- Internal or Inter-Employee Claims
Claims filed by employees against their own company, or between employees, are usually excluded. This is to avoid conflicts of interest.
- Insolvency or Bankruptcy
If a brokerage firm, firm, or individual goes bankrupt, losses resulting from this financial condition are not covered by a PI policy.
- Special Risks: War, Terrorism, and Radiation
The PI policy also expressly excludes major risks such as war, terrorism, nuclear, and radiation. These risks are considered uncoverable under the PI scheme due to their massive nature.
This list of exclusions demonstrates the importance of carefully reading the policy. Each profession may face different exclusions, depending on the sector and type of service provided. Therefore, the assistance of an experienced insurance broker is essential to ensure that the listed exclusions do not diminish the effectiveness of your coverage.
Real Case Examples
To understand how important it is to read the exclusions section in a Professional Indemnity (PI) policy, let’s look at some illustrations of cases that frequently occur in the field.
- Doctors and Malpractice Cases
A specialist doctor in Jakarta was sued by his patient for Rp 8 billion for negligence in a medical procedure. The doctor had a PI policy, but the claim was denied because the case was categorized as an intentional act resulting from failure to follow established standard medical procedures. Because it falls within the exception, the doctor must cover the losses himself.
- Architects and Building Material Damage
An architectural firm in Surabaya is facing a Rp 12 billion lawsuit after the building they designed suffered structural damage. They filed a claim with the insurance company PI, but it was rejected because PI’s policy only covers design errors, not physical damage to the building. For material damage, they should have had a Contractor All Risks (CAR) or Property All Risks (PAR) policy.
- IT Consultants and Data Leaks
An IT consulting firm in Bandung was sued by a foreign client because the application system they developed failed to protect critical data. The lawsuit amounted to Rp 10 billion. The IT policy they had apparently had an exclusion for cyber risk, so the claim was not covered. Fortunately, a broker quickly helped arrange an additional Cyber Liability policy, so the subsequent lawsuit could be covered by insurance.
These three cases demonstrate that exclusions are the riskiest part of a PI policy. Without a thorough understanding, many professionals feel protected when in reality they are not. This is why any PI policy purchase should always be accompanied by an experienced insurance broker, who can explain exclusions in detail and even negotiate extended coverage as needed.
The Role of Insurance Brokers
As we’ve seen in various case studies, exclusions in Professional Indemnity (PI) policies are often a sticking point. Many professionals feel secure simply because they have a PI policy, only to be disappointed when their claims are rejected due to exclusions. This is where the role of an experienced insurance broker is crucial.
Brokers act as interpreters and advisors. They explain each exclusion in simple language, ensuring you understand which risks are covered and which are not. Furthermore, brokers can also help negotiate coverage extensions or even remove certain exclusions deemed too restrictive.
Additionally, when a claim arises, a broker will be on your side. Insurance companies may try to use exclusions to deny a claim, but an experienced broker knows how to craft legal and technical arguments to protect your interests.
In Indonesia, L&G Insurance Broker has become a trusted partner for numerous doctors, architects, auditors, IT consultants, and law firms. With over 30 years of experience, L&G has proven its ability to help clients understand exclusions, structure IP protection according to international standards, and advocate for their rights in the claims process.
👉Don’t let exclusions become a trap in your PI policy. Ensure every detail is truly in your favor with the support of an L&G Insurance Broker.
Conclusion
From this discussion, it’s clear that exclusions in a Professional Indemnity (PI) policy aren’t just extra notes, but rather limits that determine whether your claim is paid or denied. Many professionals are disappointed because they think they have a PI policy, only to end up paying the price themselves due to misunderstanding the exclusions. Risks such as criminal acts, fraud, physical damage, or internal claims are typically not covered, and without proper understanding, a PI policy can be a trap.
Therefore, understanding exclusions from the outset is a must for any professional—doctors, architects, lawyers, auditors, or IT consultants—who wants to ensure their IP protection is fully operational in the event of a lawsuit. However, navigating the complex legal details is certainly not easy. This is why you need a…insurance brokerexperienced professionals who can interpret, adapt, and even negotiate exclusions to suit your needs.
In Indonesia, L&G Insurance Broker has been a proven partner for clients from various professions for over 30 years. L&G not only helps you choose the right PI policy but also ensures exclusions don’t harm you. Even during a claim, the L&G team is ready to fight for your rights until the best resolution is reached.
👉Don’t let exclusions backfire and harm your business and career. Contact L&G Insurance Broker today to get clear, fair, and effective PI protection when you need it.
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