As cross-border risks become more prevalent in a globalised market, insurance brokers are increasingly faced with questions about how Professional Indemnity (PI) insurance policies respond to claims involving the United States. For many Australian businesses, especially those offering consulting, design, technology, or advisory services, the potential for exposure to US based clients or legal action is real. This is where the nuances of USA Jurisdiction and USA Territory coverage in PI policies become critically important.
Territory vs Jurisdiction: What’s the Difference?
While these two terms often appear together, they refer to very different concepts in the context of an insurance policy:
- Territory defines where the act, error, or omission giving rise to a claim can occur in order for cover to be triggered.
- Jurisdiction defines where legal proceedings can be brought in relation to that act, error, or omission.
Understanding this distinction is vital when advising clients, particularly those with any exposure to US operations, clients, or markets.
USA Territory Cover: Broader Operational Reach
A PI policy that includes the USA as part of its territorial scope means that the insured is covered for professional services delivered to or performed within the United States. This is particularly relevant for Australian companies exporting services to US-based clients or working on international projects that have a US component.
Example:
An Australian software consultancy designs a system for a client based in California. The work is done entirely from Sydney, but the system is used in the US. If the system fails and causes the US client financial loss, a policy with USA territory would respond, as the act giving rise to the claim (the design work) falls within the covered territory.
However, including the USA in the territory does not automatically mean the policy will respond to legal proceedings initiated within US courts. That’s where jurisdiction comes into play.
USA Jurisdiction Cover: Legal Protection in the US
Including the USA in the jurisdiction clause allows the insured to be defended (and indemnified) if they are sued in a US court. This is a significant step up in exposure for the insurer and, consequently, the policyholder. The US legal environment is notably litigious, with higher legal costs, jury awards, and class actions far more common than in Australia.
Due to this heightened exposure, many insurers either:
- Exclude USA jurisdiction altogether;
- Include it only upon underwriting review, often with higher premiums, deductibles, and sub-limits;
- Or provide it under a separate endorsement, sometimes with specific conditions or co-insurance requirements.
Example:
The same Australian software consultancy is sued in a New York court for alleged negligence in their system design. Even though the work was performed in Australia (and the USA is in the policy’s territory), if USA jurisdiction is excluded, the insurer is not obliged to defend or
Why This Matters for Brokers
When placing PI cover, especially for clients with any international touchpoints, brokers need to:
- Clarify where their clients are delivering services: Is it purely domestic, or do they have US clients?
- Example: A Sydney-based engineering firm occasionally consults on US construction projects via Zoom.
- Identify potential litigation risks: Are contracts governed by US law, or is there a chance the client could be sued in the US?
- Example: A marketing agency has a contract with a New York-based client that stipulates disputes will be settled under California law.
- Negotiate appropriate cover: Ensure both territory and jurisdiction are aligned with the client’s risk profile and that any exclusions are clearly explained.
Common Misunderstanding
A recurring issue arises when a policy includes USA in the territory but excludes USA jurisdiction. In these cases, clients may believe they are fully protected for their US operations, only to discover, often too late, that claims brought in the US courts are not covered. This is a critical gap that brokers must flag and address.
Example:
A design consultancy is sued in Texas for an error in their plans, despite the work being done remotely from Australia. Their PI policy includes USA in the territory but not the jurisdiction. They face hundreds of thousands of dollars in legal fees with no cover.
Insurer’s General Position on USA Jusrisdiction
Most insurers are limited by their reinsurance arrangements in respect to the USA. There are two main restrictions:
- Whether the insured has offices in the USA
- The amount of income from the USA
Most insurers will not be able to cover USA offices. To make placement easier and more cost effective, it can be worth obtaining a separate policy to cover USA-based activities.
Regarding revenue, many reinsurers limit USA income to under 15% of total revenue. Some also apply a monetary threshold so smaller insureds don’t require referral. Above these thresholds, insurers are typically required to refer to reinsurers.
If USA cover is provided, market-standard limitations include:
- Reduced limit of liability
- Increased excess
- Costs inclusive limit of liability
- Exclusions including:
- Punitive/exemplary damages
- ERISA-related claims
- RICO Act violations
- US Securities Act violations
- Asbestos, pollution, or mould-related claims
FTA’s Position
FTA can provide both USA territory and jurisdiction.
- USA territory can often be added for an additional premium which would be proportionate to the size of the insured and the amount of USA revenue.
- USA jurisdiction depends on the size of the insured and percentage of income from the USA and will usually attract a higher additional premium.
Information a Broker Should Obtain
To help an underwriter assess USA jurisdiction requests efficiently, a broker should collect:
- Insured’s total revenue
- Insured’s revenue from USA clients
- Names of largest USA clients
- Does the insured have or plan to have USA offices or are they servicing from Australia?
- Optional but helpful:
- Which USA states are the clients located in?
- Have lawyers reviewed the contracts with USA clients?
Final Thoughts
With the right guidance, clients can secure PI cover that supports their growth into international markets without leaving them exposed to significant legal risks. Brokers play a key role in navigating these nuances and ensuring that policies align with each client’s operational realities and legal exposures.
If your clients are operating internationally, or plan to, it’s worth reviewing their policies carefully. The difference between territory and jurisdiction could be the difference between full protection and a costly gap.
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