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Partners under cover

June 28, 2003 12:37 IST

In 1998, S C Khanna, a practicing Mumbai-based chartered accountant, suffered huge losses because of his partner's incompetence.

His partner failed to file crucial documents in time, causing a loss to a client, which S C Khanna & Co had to bear.

Not only did Khanna lose money but a large number of his clients shifted to other accountants after the incident.

While his partner cut his losses and left him in the lurch, it took Khanna three years to restore his client base and get back on his feet. Today, with a new partner in tow, Khanna says he is a wiser man.

His firm, S C Khanna & Co, is now insured against similar liabilities. The insurance he has chosen is an annual policy that covers professionals either working alone or in a partnership and is also referred to as professional indemnity policy.

This policy covers doctors, lawyers, CAs, architects and engineers. Apart from the four state insurers -- New India Assurance, National Insurance, Oriental Insurance and United India Insurance -- new entrants like Tata AIG general insurance, Royal Sundaram and Iffco Tokio are offering cover to professionals.

The state insurers have a separate cover for CAs, engineers, lawyers and architects against unintentional errors and omissions that may cause damage, loss or hardship to their clients.

The professional indemnity cover for engineers and architects covers the risks arising out of material and construction damage, death or bodily injury attributed to a negligent act, error or omission.

For accountants and lawyers, the policy provides cover against the legal liability incurred by the professional or firm due to losses to clients. The premium payable for this cover works out to Rs 1.50 to Rs 1.70 per Rs 1,000 that is insured depending on the firm.

There is also a doctors' indemnity policy which specifically protects registered medical practitioners.

Doctors who are registered medical practitioners can insure not only themselves, but also other doctors (who may be partners in the practice or consulting in the practice) and employed assistants, by naming them in the policy.

Apart from this, unqualified staff like peons, sweepers working in the clinic can be covered by paying an additional 7.5 per cent of the sum insured as premium.

The cover can be for any one accident in any one year or for two, three, four accidents in one year.

If a doctor takes a policy cover for Rs 100,000 for four accidents in one year, he can get compensated only for four cases even though the claims may be low.

"Typically the decision regarding how many accidents one needs to cover for, is based on the skill of the individual doctors," says Kiran Chiplunkar, development officer, New India Assurance.

The rate of premium per Rs 1,000 of sum insured, in the case of a non-surgical consulting physician taking a cover for one accident in one year is Re 1. The compensation limit for any one accident could be 25 per cent of the annual limit.

In other words, if the cover and claim is for one accident, then 100 per cent compensation is given, but if it is a four-accident cover then the compensation is divided equally over the claims.

Also, if the cover is taken for four accidents in one year the premium goes down to 0.60 paise per Rs 1,000. The more the skill involved, the higher the premium.

So surgeons and anaesthetists have to pay Rs 3 per Rs 1,000 of sum insured for covering the risk of one accident and 0.80 paise per Rs 1,000 for covering the risk of four accidents in one year. Other private players like Iffco Tokio have similar policies.

On the other hand, apart from having the regular policy, Tata AIG has tailor-made a policy specifically for CAs.

Tata AIG's policy has been devised with the Bombay Chartered Accountants' Society and is available for individual CAs as well as firms with 1-5 partners.

Says Dalip Verma, managing director, Tata AIG General Insurance, "We worked on this plan keeping in mind the increasing number of accounting scandals that are taking place."

Though it estimates that over 40,000 CA firms in India with 1-5 partners could benefit from the customised policy, it is still to take off in a big way.

This specific policy covers actual or alleged breach of duties, neglect, error, misleading statements or omission by the person or firm insured along with coverage for all legal expenses incurred in defending such claims.

Tata AIG will pay 100 per cent of the limit of liability and does not restrict the compensation limit per occurrence to 25 per cent of the aggregate limit. The annual premium for a Rs 500,000 cover is Rs 3,000.

However, there are exclusions. For instance, under the doctors indemnity policy, criminal acts, any act committed in violation of any law or ordinance, services rendered under the influence of intoxicants or narcotics, general anaesthesia or any procedure carried out under general anaesthesia by dentists and dental surgeons, unless performed in a hospital, the use of drugs in weight reduction or third party liability are not included.

Similarly, for accountants and lawyers any liability arising out of intentional non-compliance of a statutory provision, loss of goodwill or loss of market is not covered.

Tata AIG, for instance, specifies that the firm's revenue from auditing companies listed with any stock exchange should not exceed 30 per cent or that the client list must not have more than five multinational companies.

"The product is still to take shape. Even now, be it the state insurers or the private players, people are not sure of what they are offering," says a Mumbai-based CA.

And then there is the inevitable problem with settling claims. Chiplunkar and other development officers say that doctors, for instance, must mention all the areas they practice in, so that the cover can be national.

Also, like always, whether it is an accountancy firm or a medical practice, the policy fineprint must be read in detail.

There are benefits like retroactive dates which allow compensation for a negligence committed years back provided the policy holder is covered continuously.

Then also ask your agent to find out about the discounts you can get if a group of professionals takes a cover as opposed to individual policies.

And doctors, says Chiplunkar, should specifically remember that the medical profession has been brought under the ambit of the Consumer Disputes Act, making it more important for them to be covered by this policy.

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