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.
Structuring — the Sum, Underinsurance and Overinsurance
In structuring insurance the decisive element is the sum insured. Where the sum insured is less than the insurable value at the moment of the insured event — reduced or incomplete insurance — the insurer compensates the damage in proportion to the ratio of the sum insured to the insurable value. This rule is critical for professional insurance: the sum fixed at conclusion must correspond to the real risk, otherwise part of the loss remains with you.
The rules on double insurance are equally relevant. A person who has insured the same interest simultaneously with several insurers must immediately notify each insurer of this, and the notice must indicate the identity of every insurer and the amount of the sums insured. Where the sums together exceed the insurable value, or for other reasons the total of the indemnities payable exceeds the whole damage, the insurers are joint debtors — but the policyholder has no right to receive in total more than the actual damage. Duplicate policies thus create additional expense, yet entitle no one to more than the loss.
What These Norms Do Not Regulate
This chapter of the Civil Code regulates the concept of the contract, defence costs, the mandatory format and the arithmetic of the sum — the details of professional standards, the concrete terms of policies and their exclusions are filled by separate acts and by the contract itself. Which professions require compulsory insurance is decided by special legislation: in the accounting, reporting and audit sphere the requirement is written in a separate law, and the auditor’s compulsory insurance derives precisely from there. The complete picture for each professional group is therefore assembled by reconciling two sources: the general frame from the Code, the sectoral duties from the special law.
Frequently Asked Questions
Below we summarise the questions that arise most often in practice on this topic.
What does the insurance release?
The obligation befallen on the policyholder toward a third person due to liability arising in the insurance period — including court and out-of-court costs.
How does the mandatory format work for third persons?
The insurer’s liability toward the third person remains in force in cases provided by law; a satisfied claim passes to the insurer.
What happens when the sum is insufficient?
Damage is compensated proportionally to the ratio of the sum to the value — the shortfall remains with you.
May one insure with several insurers?
Yes, with immediate notice to every insurer; in case of excess the insurers answer jointly, but no more than the damage in total.
What must the double-insurance notice contain?
The identity of every insurer and the amount of each sum insured — the notice must be sent to each insurer without delay.
How We Help on Legal.ge
Our team will help you select policy terms, calculate the sum insured, assess compulsory-insurance requirements and respond to a third person’s claim. Contact us on Legal.ge — we will re-examine your risks, compare policies and distribute your professional liability with the exact instruments of the law.