With new requirements for fire protection practitioners to be accredited in NSW coming into force last month, we have already begun to see insurance claims start rolling in. For those of you who now need to hold Fire Protection Accreditation Scheme (FPAS) accreditation, there is more to insurance than just meeting the scheme’s minimum requirements.
From 1 July 2020, individuals in NSW who endorse plans and specifications for fire protection designs will need to hold FPAS Fire Systems Design (FSD) accreditation. Those who endorse fire safety measures on annual or supplementary fire safety statements must hold FPAS Fire Safety Assessment (FSA) accreditation.
Both classes of accreditation have minimum requirements for Public and Products Liability (PL) and Professional Indemnity (PI) insurance in order to gain accreditation.
But the minimum requirements are just that – the minimum. Those minimums potentially leave FPAS accredited practitioners seriously exposed over time.
As insurance claims for accredited practitioners already start coming in, particularly for FSA, it’s important to revisit your coverage to make sure you won’t be left high and dry if it happens to you.
Minimum insurance requirements for FSA and FSD accreditation
Both FPAS FSA and FSD accreditation require that the accredited individual or their employer hold:
- PL insurance of $10 million; and
- PI insurance of:
- $2 million inclusive of defence costs; or
- $1 million exclusive of defence costs
Their PI insurance must:
- Include a list of all work activities relevant to the accreditation class and category held
- Be in the name of the accredited individual or the company name only and not be a joint policy with any other party
- Cover all past work of the accredited individual while accredited to a maximum of 10 years
One of the outcomes of AWIB’s long-time collaboration with FPA Australia, FPAS requires FSA and FSD practitioners’ PI insurance to list all the work activities they will be permitted to undertake with their accreditation.
AWIB’s policies go into significant detail on these work activities, because of our specialisation in fire protection insurance. Make sure your policy doesn’t use vague definitions of work activities such as “fire consulting business”, which only leave you unsure what you’re actually covered for and give the insurer a chance to wiggle out of honouring your cover.
Check the fine print, and make sure the work activities listed in your insurance policy are as specific as they can be.
Make sure the work activities listed in your insurance policy are as specific as they can be.
What’s different about PI insurance for FSA & FSD?
The PL insurance requirements for FPAS FSA and FSD accreditation are fairly standard. If you’ve already read our last blog post, you’ll know that $10 million is the minimum PL coverage a fire protection company should consider anyway.
The FPAS requirements for PI insurance are a little different, however. If you’re an FSA or FSD practitioner, there are two wrinkles in the FPAS requirements you need to be aware of, and one of them may expose you to a serious risk.
Save money with a cost exclusive policy
The first issue is that you must hold coverage of $2 million if your policy is ‘cost inclusive’ – that is, your $2 million cover has to pay for the cost of the insurance claim and the cost of your legal defence. Most PI policies work this way.
However, if your PI policy is ‘cost exclusive’ you are only required to hold $1 million in coverage. This means that any defence costs you might incur against a claim will be paid by your insurer in addition to the sum insured.
AWIB’s PI policies work this way. We designed them that way specifically to save our clients money, and give them peace of mind that we would back their ability to mount a strong defence against insurance claims.
Under the FPAS FSA and FSD requirements, it means AWIB clients can opt for the lower $1 million in PI coverage. That can save you about 20% on your premiums each year, compared to coverage of $2 million.
That said, it’s a ‘minimum’ requirement for a reason – we recommend FSA and FSD practitioners opt for $2-5 million in PI coverage.
10-year responsibility; retroactive and run-off cover
The second issue is the liability of accredited practitioners for 10 years. It’s here that things get tricky.
The NSW Government’s recognition of FPAS FSA and FSD accreditation falls under the state’s Building and Development Certifiers Act 2018. Under the Act, practitioners are held responsible for their work for 10 years.
That means FSA and FSD accredited practitioners need their PI insurance to cover any work they’ve done in the past 10 years, instead of the more common seven years.
PI insurance isn’t like car insurance, where a claim is processed straight after an accident. PI claims might arise years after a project when a problem is discovered. You might have changed insurance companies at this point. For PI, you’re covered by the insurance you have on the day the claim is made, not the insurance you had when you did the work.
Under the FPAS FSA and FSD requirements, your PI policy needs to have at least 10 years of retroactive insurance to cover any work you’ve done in the past decade. AWIB’s PI policies include unlimited retroactive cover, right back to when you first went into business.
What FPAS doesn’t require is insurance for when you stop working, called run-off cover. But while you don’t need it to gain accreditation, not having it leaves you dangerously exposed.
If you retire or close your business today, you are still liable under the Act for the work you just finished for the next 10 years. To protect yourself against old work coming back to haunt you when you’re no longer working in the industry, you need to buy run-off cover. You only need run-off cover when you stop working – if you sell the business or cease operating, or retire.
Paying for run-off insurance once you’ve stopped earning money for the work it covers isn’t the most appetising concept. Some people choose to take the gamble without it. We’ve seen that go wrong often enough that we strongly recommend you don’t run that risk. It might look expensive, but over 10 years run-off cover is significantly cheaper than your annual PI premiums for the same period would have been.
While you don’t need run-off cover to gain accreditation, not having it leaves you dangerously exposed.
Run-off cover for employees
Because FPAS does not require businesses employing FSA or FSD accredited staff to purchase run-off cover, those staff may be left vulnerable.
Remember that the individual accredited practitioners are personally responsible for their work. If you sign an Annual Fire Safety Statement that says a building’s fire protection systems are OK and it turns out five years later that they weren’t, you’re liable.
If the company you were employed by at the time has since ceased operations or otherwise let their PI insurance lapse, and has not purchased run-off cover, you will not be protected by any insurance.
You may not even know you’re exposed – how often do you keep in touch with your past employers about the state of their insurance?
It’s also unclear at this point if the Act allows you to buy PI insurance or run-off cover under your own name to protect yourself, once you leave an employer.
This is a complex and evolving situation, and AWIB is working hard with our legal team on finding an answer. We hope to have a solution available soon to help FPAS accredited practitioners cover themselves against this dangerous loophole in the regulations, so watch this space.
GET IN TOUCH
Need insurance for FPAS FSA or FSD accreditation, or not sure if your current insurance has you properly covered? Get in touch with AWIB – with decades of experience in fire protection, there’s no one who can safeguard your business better.