Short term professional indemnity insurance: a risky business.

Short term professional indemnity insurance - a risky business

Pitching for new contracts can be stressful enough without having to worry about what might happen if you were to make a mistake while working on a project.

Most contractors are required to have professional indemnity insurance with a minimum limit, just in case something goes wrong so their client has a way to claim back any losses their business might suffer. It's standard practice in almost all industries, particularly business consulting and IT contracting, as well as those undertaking work for local authorities, NHS trusts and the like.

Most contracts are completed without a hitch; everything is done and dusted, you've been fully paid and the client is happy with their work. So at this point, you might think you don't need the professional indemnity insurance you bought specifically for this contract anymore. After all, the client's happy with the work, so what could possibly go wrong?

The problem is that by cancelling your professional indemnity insurance policy, you're leaving your business exposed to claims from the date you cancel it onwards. Professional indemnity is arranged on what's known as a 'claims made' basis, which effectively means that your policy needs to be in force both when the claim is brought against you and when you undertook the work which the claim relates to.

To give an example; assume an IT contractor works on a contract that runs from January until August. The project finishes, everyone's happy and the IT contractor cancels their professional indemnity insurance policy in September. However, a significant flaw in the IT system's architecture comes to light in October, and the client brings a claim for thousands of pounds against the IT contractor.

As the contractor decided to cancel their policy in September, they wouldn't be covered for any claims made after that date; regardless of the fact the policy was in force during the time they undertook the alleged negligent work. So in this instance, they are without cover and would have to pay the costs of the claim out of their own pocket.

It is a nightmare scenario for many contractors to find themselves in, but could be avoided by keeping your policy in force continuously, ensuring there are never any gaps in your cover. Even if your business has ceased trading or you've retired, it's worth considering keeping your cover in force just in case a problem arises from an old project.

Markel offer 12 month policies that can be paid for by interest free direct debit and offer continuous cover, meaning that at the end of the 12 months, your policy will automatically renew and you won't be exposed to claims for a single minute. Get a quote now or call us on 0800 640 6600 to speak to an expert.

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