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Members will be affected in three main ways
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Members will be affected in three main ways:

  1. Professional indemnity requirements
  2. Costs-in-addition / costs-inclusive cover
  3. Office stationery
1. PI requirements 
When the schemes commence, participating members (that is, CPP holders, affiliate members and practice entity members) will only get the benefit of the cap on liability if they can satisfy the court that they hold professional indemnity (PI) cover to the level of the relevant cap which applies under the scheme. 
 
In summary the caps that will be relevant at members’ next PI renewal are set by category of service provided as follows: 
For all categories of service the minimum caps are anticipated to be:
  • $500,000 up to 30 June 2008
  • $750,000 from 1 July 2008 to 30 June 2009
  • $1million after 1 July 2009
From 1 July 2009 for category 1 (audit and related services):
  • A limitation amount of $1million where an engagement fee is $100,000 or less
  • Where the engagement fee is greater than $100,000, the limitation amount is a multiple of ten times the fee up to a maximum fixed cap of $75million
From 1 July 2009 for Category 2 (insolvency services):
  • A limitation amount of $1million where an engagement fee is $100,000 or less
  • Where the engagement fee is greater than $100,000, the monetary ceiling is ten times the highest fee billed in any single year of the previous three years. This fee may represent an interim billing for a multiple year engagement.
  • Alternatively, a member can apply to the Institute to use its discretion to set a higher cap up to the level of $75million.
From 1 July 2009 for Category 3 (services which are not included in categories 1 or 2):
  • A limitation amount of $1million where an engagement fee is $100,000 or less
  • Where the engagement fee is greater than $100,000, the limitation amount is a multiple of ten times the fee up to a maximum fixed cap of $20million
  • Alternatively a member can apply to the Institute to use its discretion to set a higher cap up to the level of $75million.
Obtaining PI cover at the relevant levels above will ensure the smooth transition for the national capping regime and compliance with the Institute’s PI requirements. 
 
2. Costs-in-addition/cost-inclusive cover 
PI policies are offered on both a 'costs-in-addition' and a 'costs-inclusive' basis. Costs-in-addition cover provides that the legal and other costs of defending and settling claims are payable in addition to the limit of indemnity specifically stated in the policy. Costs-inclusive cover provides that the specific limit of indemnity in the policy includes defence costs (that is, the amount available to the claimant is reduced by the amount of the defence costs).  
 
Costs-in-addition cover should be obtained to ensure that legal and other costs of defending and settling claims do not reduce the level of cover available to a claimant below the limitation amount. Where cost-in-addition cover cannot be obtained and cost-inclusive cover is held, the level of cover required to meet the limitation amount must be increased by at least 25 per cent.  
 
3. Office stationery 
Professional Standards legislation requires that the business stationery of all participating members carries a disclosure of their limitation of liability. Once the schemes commence, participating members in other states will be required to include a disclosure statement similar to that currently displayed by members in New South Wales, as follows: 
 
Liability limited by a scheme approved under Professional Standards Legislation 
 
Members outside New South Wales should bear in mind the likely commencement date (1 October) when ordering quantities of stationery, which will need to be reprinted to include the PSC disclosure statement. 
 
Return to the web article Insurance: Progress for Institute capping schemes 
 
For more information 
 
 
Last updated: 16 August 2007