Why do tradesmen need professional indemnity insurance?
Most tradesmen will have to deal with difficult and/or unsatisfied customers at some point. Unfortunately, some unsatisfied customers choose to take their complaints further and pursue legal action – especially if they feel they’ve experienced a financial loss because they followed your advice, or because they used your services.
Tradesman professional indemnity insurance is specifically written to provide cover for claims such as these, which can arise if the client feels your work is of poor quality. The policy will give you peace of mind that you’re covered in case of a negligence claim from a disgruntled client.
No matter how good you are, when a customer makes a complaint it can put your reputation at risk, because bad word spreads, which can have a negative impact on your future work opportunities and income.
Why do I need professional indemnity (PI) if I already hold tradesman liability (PL) insurance?
Tradesman public liability insurance is arguably the most common type of insurance protection held by tradesmen. It is an important type of cover for businesses that deal with customers because it offers protection for members of the public in the event of an accident or accidental damage.
PL is written specifically to cover liability claims. It does not cover claims of negligence, bad advice and poor-quality work, which is what PI does cover.
PI is a great way to protect your business finances and will cover claims of alleged poor advice, negligence, and issues with designs that are alleged to have caused your client a financial loss.
Which trades does professional indemnity cover?
You don’t have to be a designer or planner to benefit from a tradesman professional indemnity insurance policy. Any trades professional who gives any form of advice, whether it be in writing or as friendly verbal advice, can be subject to a professional indemnity claim.
Misinterpreting plans or miscalculating measurements when fitting plumbing and heating systems or rewiring a house, could cause a significant financial loss for your client if the work has to be redone, which could trigger a professional indemnity claim to cover the loss.
You could be a painter and decorator who advises your client what paint to use for the upkeep of a job, but you forget to mention what type of brush to use which results in brush hairs in the paintwork. Or you could be a plaster who forgets to mention how long a client should wait before painting their newly skimmed walls. The client paints the walls too early, resulting in burst plaster and the walls needing to be reskimmed.
I’m a sole trader, do I need PI cover?
Setting up as a limited company isn’t for everyone, as of June 2022 there was approximately 3.2 million UK sole traders. Despite the perceived protection that is provided by a limited company, running a limited company can increase a company’s costs and admin as well as complicating income payment and personal taxation.
Setting up your business as a limited company can limit your risks. However, as a limited company director you could still be pursued personally by a claimant, even if they have made an unsuccessful claim against your limited company. In an instance such as this, directors and officers insurance would offer cover for the claim.
If you’re a sole trader, ask yourself if you could afford to pay legal fees and compensation out of your own pocket? If not, then professional indemnity insurance will give you the peace of mind that you’re covered should a claim be made against you.
When would a tradesman need professional indemnity cover?
PI insurance covers more scenarios than you might expect, examples can include:
• Negligence - This can mean a breach of a contractual obligation, or it can mean criminal negligence, such as working whilst under the influence. There are many examples of negligence that you should make yourself aware of.
• Bad advice and/or poor workmanship - Giving incorrect advice to a client that has caused them to lose money or completing a customer’s work that is such poor quality that they have to pay someone else to redo the work properly.
• Defamation and libel - If you speak badly of a competitor or about a contractor you’ve worked for. As a result, you could find yourself facing legal action for defamation of character.
• Breach of contract - Reneging on part of your contractual obligations with your client or with the main contractor who has hired you, could result in a breach of contract claim for which PI could respond to provide cover for the legal costs incurred as part of the claim.
• Breach of confidentiality - If you store sensitive client information on your computer or mobile phone about a project you’re working on, or details about customer bank details or personal addresses and contact details, then at the very least you heighten your risk of a confidentiality breach.
Unintentional sharing of this kind of information can occur from human error, resulting in spam emails, unwanted telephone calls, and phishing attacks. Breach of confidentiality can also include clauses in your contract about certain projects you are working on.
• Unintentional copyright breach - Anyone who produces designs needs to be careful. Also, what if you as a self-employed tradesman use photographs you have taken from the internet to promote your small business? If you don’t have permission to use those photos, you could be pursued for royalties payments.
• Losing documents you’re responsible for - You are working for a main contractor and you lose important plans for your part of the project. Or worse, you might lose financial documents that contain sensitive data pertaining to the project or your client.
• Losing goods or money you’re responsible for – For example, materials you need for a job are stolen from the back of your wagon when you stop for a coffee.
• Data protection legislation prosecution - Legislation surrounding data and privacy is strict and can be easy to breach without knowing it. PI can cover your legal costs if a claim is made against you for a breach.
You may also be asked to have professional indemnity insurance in place to be a member of a trade association.
• Professional indemnity cover can protect your business against the legal and financial complications incurred in the event of a negligence claim.
• PI can help you win contracts.
• PI can cover negligence, poor advice and poor workmanship.
• PI can help you achieve membership of trades associations, which can add credibility to your business and instill trust from your customers.
• Having PI in place gives you peace of mind so you can concentrate on your job.
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