Joint Ventures and your Professional Indemnity

Joint Ventures and your Professional Indemnity

What is a joint venture? How does it affect my PI cover?

New firm formed to achieve specific objectives of a partnership like temporary arrangement between two or more firms. JVs are advantageous as a risk reducing mechanism in new-market penetration, and in pooling of resource for large projects. They, however, present unique problems in equity ownership, operational control, distribution of profits (or losses) and I’m afraid, when there is a professional indemnity claim. Research indicates that two out of five JV arrangements last less than four years, and are dissolved in acrimony.

From a Broker or Risk Management point of view, it is important to identify whether your clients are involved in joint ventures and if so declare them to their insurers. Some Insurers will cover automatically but most will not. Then if you do ask to include joint ventures you need to make sure it is clear that it is the Insured’s own risk in the joint venture, or do you want to cover all the joint venture partners.

Depending on the nature of the JV, it is possible that insurers will cover all parties under one party’s own Professional Indemnity, but in many cases insurers may refuse. It them means separate cover just for the joint venture, but the problem is that when the joint venture ends, they need to take out “run off” cover. Some insurers will do it as a single project cover, particularly where a Design and Construct type risk. If this is not possible, then multi-year “run off” cover can sometimes be bought but how long do you need it for?

My advice is all parties in a joint venture should cover their own risk and this should be a clearly stated intention in any JV agreement. Let the insurers sought out between them who is proportionally more to blame in the event of a claim, but most will be 50/50.