The Legal Nature of Professional Liability Insurance
Professional liability insurance in Georgia is written under the insurance chapter of the Civil Code: the concept of the contract, the coverage of defence costs, the mandatory format, the statutory possibility of compulsory insurance and the rules of calculating the sum insured — five provisions, five distinct angles. The Georgian carrier is precisely this chapter, while sectoral requirements for individual professions — compulsory insurance for auditors, for example — are defined by special legislation. Evaluating a policy therefore proceeds on two levels: the general frame of the Civil Code is verified first, and then the demands of the special law and the concrete terms of the contract.
The Concept of the Contract and the Defence of Claims
Under a civil liability insurance contract the insurer must release the policyholder from the obligation that befalls him toward a third person due to liability arising during the insurance period. This definition works precisely for a professional: an auditor, architect, lawyer or consultant incurs liability toward a third person because of a professional error, and the insurance covers exactly that obligation. The decisive detail here is the insurance period: the liability must arise precisely within that period, which demands careful selection of the policy’s temporal boundaries.
The coverage also includes court and out-of-court costs: the insurance covers costs incurred to defend against a third person’s claim, where the circumstances of the case make their incurrence necessary. In practice this means that the cost of defending a claim brought by a third person also stays within the policy: court costs, representation fees and other necessary expenses remain inside the coverage — defence and indemnity work together.
The Mandatory Format
The law also provides a special regime of compulsory insurance: the law may provide for compulsory insurance to which the rules of the chapter apply, provided this does not contradict the legislation on compulsory insurance; reinsurance relations are governed by the procedure established by legislation. Under compulsory insurance the third person’s position differs: where the insurer is fully or partially released from the obligation toward the policyholder, its liability toward the third person nevertheless remains in force in the cases provided by law; and where the insurer satisfies the third person’s claim, that claim passes from the policyholder to the insurer. It is precisely this mechanism that makes a professional insurance policy a real guarantee for third persons: the injured party addresses the insurer independently of the internal relations between insurer and policyholder.