Professional indemnity insurance (PI) in Latvia

Who needs this solution

• Designers, architects and engineering firms – designs for structures, utility networks, process and energy solutions;
• construction supervision and project management – decisions that affect the cost and the schedule of a project;
• IT companies and developers – software errors, integrations, system implementation;
• accounting, tax and financial consultants – reports, calculations and advice with direct financial consequences;
• legal and management consultants – opinions and recommendations that the client relies on;
• land surveyors, experts and valuers – data and conclusions on which transactions are based.

Where PI ends and another policy begins

It is worth drawing this line straight away, because three products – PI, general civil liability and D&O – are the ones most often confused.

A Latvian particularity that must not be carried over from foreign material. Latvian insurance law has no separate class of professional indemnity insurance – it sits inside the general civil liability class. The practical consequence: the PI wordings of local insurers often also cover damage to health, life and property, not just purely financial loss. The statement "PI covers only financial loss" is therefore correct as a description of the product concept, but wrong as a description of a specific Latvian policy – the scope has to be read in the wording.

Claims-made and three things to understand about it

Voluntary PI cover normally operates on a claims-made basis: what matters is when the claim is brought and notified, not only when the error was made. Three practical consequences follow from this.

• The retroactive date. It determines how far back in time errors are covered. If it coincides with the inception of the policy, every earlier project falls outside the cover.
• Notification of circumstances. If during the policy period you notify the insurer of circumstances that may lead to a claim, a claim brought later is attributed to that policy. Failure to notify in time is the most common reason why cover disappears.
• Run-off, or cover after activity ceases. A claims-made policy ends together with the activity. If the company is sold or wound up, or the specialist retires, past projects are left unprotected unless an extended period has been bought.

Why the retroactive date is critical for a designer

A design error does not usually come to light on the day of handover. It comes to light in operation – when a structure starts to crack, a system cannot deliver the designed capacity, or costs exceed what was calculated. Years can pass between the error and the claim, and in Latvia the time span is long: buildings have guarantee periods laid down in law for each of the building groups, while the general limitation period for claims arising from obligations under the Civil Law (Civillikums) is ten years.

The practical consequences of changing insurer. There is no law requiring a new insurer to take over the old retroactive date – the insurer has to agree to it. In cheap quotes the line "retroactive date" often shows the inception date of the policy, and that means there is no cover at all for past work. A gap between policies also resets the date. When comparing quotes, this single line is therefore worth more than the difference in premium, and "retroactive date = policy inception" is a red flag.

In construction: the statutory minimum and real cover

Compulsory civil liability insurance for construction specialists and contractors performing construction works in Latvia is governed by Cabinet Regulation No. 502 of 19 August 2014 (MK noteikumi Nr. 502), which has been in force since 1 October 2014 and has not been amended since. It is a precondition for working, and its scope is set out in the regulation itself.

On top of the limits, the regulation provides for three further things that are rarely noticed in quotes: the sub-limit for damage to the environment is 25% of the total liability limit; the deductible may not exceed 20% of the liability limit; and after acceptance for occupancy the contractor's minimum limit is halved, while the maximum term of guarantee period insurance is five years.

An important asymmetry worth knowing about. Under paragraph 15 of the regulation, a construction specialist's cover applies to loss caused to other participants in the construction process and to third parties, whereas a contractor's cover under paragraph 34 applies only to third parties. That is one of the reasons why the client's property is left outside the cover of a contractor's compulsory policy; there is more on this in the article on general liability exclusions.

The compulsory minimum is nevertheless not enough for two purposes. First, the limits are linked to construction costs or to the contract sum and, on a large or technically complex project, can be many times smaller than the loss that is realistically possible. Second, a company usually does more than the scope of a construction specialist's certificate covers – project management, consulting, technical specifications, procurement documentation. A voluntary PI programme fills both of these gaps, and on large projects clients increasingly require it in the contract as well.

Which professions in Latvia must be insured

The list is longer than people usually think, and it regularly turns up companies that learn of their obligation from a client or from a supervisory authority.

Two frequent misunderstandings. First, there is no compulsory professional indemnity insurance for medical practitioners in Latvia – questions of patient compensation are dealt with by the Medical Treatment Risk Fund (Ārstniecības riska fonds), and a private policy is voluntary and sits above the fund. Second, the compulsory minimum is not a measure of adequacy: 15 000 or EUR 50,000 is a regulatory floor, not an assessment of the real risk.

What a standard quote often overlooks

• The description of activities. Cover applies to the activities that have been declared. If the company has started doing something new during the year, it must be declared immediately, not at renewal – otherwise it is not only the new line of business at risk, but the validity of the whole contract, because of the duty of disclosure.
• Assumed contractual liability. PI covers liability that would arise at law for negligence. If in a contract you sign up to an indemnity, a heightened standard of care, an extended guarantee, or waive rights of recourse, that part usually falls outside the cover. This is one of the rare cases where a signature on a contract directly reduces the value of the insurance.
• Guaranteed results and fitness for purpose. A promise of a specific capacity, output or result is a contractual obligation, not negligence, and policies exclude it. On energy and technology projects this is the most frequent point of dispute.
• Where defence costs sit within the limit. In Latvian PI policies they are usually included within the limit and are sub-limited as well – sometimes at a small percentage of the limit. Do not carry over from English-language material the assumption that costs are "in addition to the limit".
• The structure of the limit. Both have to be checked: the limit of indemnity for any one claim and the aggregate limit for the period. They are not the same thing, and usually only one of them is on the first page of a quote.
• Aggregation of related claims. Several claims arising from one cause are usually treated in the wording as a single claim. That means one deductible, but also one limit for the whole series.
• Subcontractors' work. Some Latvian wordings exclude loss caused by engaged subcontractors entirely, others cover it on condition that the subcontractor has its own policy with a stated limit and that you do not waive rights of recourse.
• Territory. The default in a Latvian PI policy is the territory of Latvia. Cover for the EU or for a wider territory can usually be bought, but it is a separate agreement. Two concepts also need to be kept apart: where the work is carried out, and which country's court hears the case.

Redoing your own work: exactly where the line runs

The basic principle is clear: liability insurance covers the loss your error has caused to someone else, not the cost of doing your own work correctly a second time. In Latvian wordings this is usually expressed as an exclusion of the costs of putting right defective or erroneous work.

Two qualifications make this picture usable. First, the market offers rectification costs extensions: they are sub-limited, require the insurer's prior consent, and operate only where rectification is cheaper than the claim that would otherwise arise. They are worth asking for. Second, "redoing" and "betterment" are not the same thing: betterment is that part of the value by which the result ends up better than it originally was, and it is deducted from an otherwise covered indemnity.

Decision table: what to check in a PI quote

Information and documents required

• A detailed description of activities and services
• Annual turnover and its breakdown by type of service
• A list of the largest projects and their value
• The number of specialists, their certificates and qualifications
• Standard client contracts and the liability limitations in them
• Whether and how much work is passed to subcontractors
• The claims and complaints history of recent years
• The existing policy, if there is one – for carrying over the retroactive date

Typical exclusions

PI normally does not cover: deliberate breaches and fraud, the cost of redoing your own work, contractual penalties and guarantee obligations, a guaranteed result or fitness for purpose, and claims and circumstances that were known before the policy was taken out. In the best wordings the fraud exclusion has a severability provision, so cover is preserved for the partners who acted in good faith.

Fines and sanctions are uninsurable regardless of the policy text: Section 52(3) of the Insurance Contract Law (Apdrošināšanas līguma likums) provides that in civil liability insurance the indemnity does not cover a fine, a late payment charge or any other kind of sanction imposed on the insured. Paragraph two of the same Section, by contrast, permits litigation, expert examination and defence of interests costs to be covered.

How I work with professional indemnity

I start with what the company actually does and what it signs up to in its contracts – because it is precisely the mismatch between the description of activities in the policy and the actual activity that is the most common cause of a declined claim. I then review what is already covered by compulsory insurance and what is left outside it, compare quotes on substance rather than on premium alone, and pay particular attention to the retroactive date, the subcontractor wording, where defence costs sit in the structure of the limit, and liability assumed under contract. Where conditions are unclear, I ask the insurer to confirm them in writing. If a claim arises, I help with the notification and with the process through to resolution.

A practical example

A typical situation (a generalised example, not a specific client case): an engineering firm changes insurer because the new quote is cheaper. In the quote the retroactive date is the inception date of the policy, and nobody comes back to it. Eighteen months later the client brings a claim about a solution in a design handed over three years earlier. The new policy does not cover the past, the old one is no longer in force, and defence costs start immediately. Carrying over the retroactive date would in this case have cost incomparably less than the premium saving.

Frequently asked questions

This page provides general information about professional indemnity insurance and is not individual insurance advice. Actual cover always depends on the chosen insurer's wording, the special conditions in the policy and your situation – we will assess those together before any decision.

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