PI insurance is what covers the certifier if someone claims that they certified something that was unsafe, fraudulent, etc.. General Liability insurance is to cover claims such as someone injuring themselves at the certifier's office or because of the presence of a certifier at a site, such as tripping over equipment owned by the certifier. Insurance works on a claims made basis, which, for PI, tends to be after something goes wrong, some time after certification. Hence, there remains a risk of having a claim made against a certifier years after they cease working. The same doesn't really apply for general liability, because the claim will usually arise directly from something that happened while they were still working. Hence, while there is a valid argument in support of having PI run-off cover in case of legal action after retirement, I believe that it is very hard to justify a requirement to have 7 years of run-off cover for general liability.
There is precedent for the RTA specifying this insurance requirement. VicRoads already have a scheme that imposes a similar requirement for insurance. Unfortunately, the VicRoads scheme has already caused problems. I'm advised that one engineer was sued and even though he apparently won the case, his insurer declined to insure him again, which he was required to declare when he applied for insurance elsewhere. That effectively meant that all insurers refused to cover him, leaving him without the mandatory insurance, forcing him off the scheme immediately. While I don't know whether the VicRoads scheme has a run-off requirement like the RTA proposal, the same scenario in NSW would leave the certifier in breach of the run-off cover provision of the regulation, resulting in a fine.
It has been suggested to me that if a certifier fails to maintain run-off insurance, it doesn't necessarily end with just a fine. The RTA could take the certifier to court for not having the insurance, and seek to have the court order that the certifier obtain that required insurance, even if all insurers have refused it. It's quite a circular problem, and the only way to avoid it is not to join the VSCCS in the first place.
The obvious question is why do the RTA want to force certifiers to have insurance? The answer appears to be that the goal is to put the certifier and their insurance between any potential claim and the RTA. Interestingly, I came across a situation some years ago where a company wanted to specify insurance requirements for a sub-contractor, but changed their mind very rapidly when they were advised that the act of prescribing that insurance requirement could potentially make the company jointly liable in the event of any insurance claim against that sub-contractor, whereas if they didn't specify an insurance requirement, they would be very unlikely to have any liablity if a claim was made against the sub-contractor.
I suspect that the RTA could find themselves in a similar situation, particularly since the VSCCS brings certifiers far closer to the RTA than the signatories are in the present ECS. In the present scheme, signatories produce engineering certificates on their own letterhead, in a format prescribed by the RTA. Under VSCCS, the certification would be done on the RTA's web site, then an RTA document generated.
The decision whether or not to have insurance is a commercial decision by a business operator. From discussion with many of the existing engineering signatories, I have learnt that some have PI but many do not. I personally do have PI, having obtained it within the first few months after establishing my business in late 1998 and maintained continuous cover ever since.
While the entire question of prescribing an insurance requirement appears problematic, I've recently become aware of yet another issue that may present an insurmountable obstacle for many of the existing engineering signatories. A signatory who is aged 70 enquired about PI insurance and was advised by at least one insurer that they would not provide PI to a person aged 70. I do not know at this stage whether this is an industry-wide position, and if so, what the actual cut-off age is. If it's 70, then to have 7 years of run-off cover, a certifier would have to have retired by the age of 63. If the cut-off is less than 70, the forced retirement age under the scheme would be correspondingly younger.
This presents two significant problems. The first is that many existing signatories are already aged 63 or over, and this insurance requirement would make it impossible for them to continue to operate their established businesses. The second is that those people who would be in the scheme for only a few years would need to save up enough money to cover that run-off period, when the cessation of their business makes them unable to claim input tax credits or tax deductions on the premiums.
The mandatory insurance requirements, particularly the run-off requirement, will directly act as a restraint of trade, preventing otherwise suitable people from earning an income whilst providing a necessary service.
Hence, here's another question in regards to the proposed VSCCS scheme, which I believe needs to be answered by the NSW Minister for Roads, The Hon. David Borger, MP:
- Will the minister please explain why the mandatory insurance requirements have been built into the proposed scheme that has been developed by the RTA under his government?
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