What is professional indemnity insurance?
Professional indemnity insurance is a commercial policy designed to protect you and your business against claims for financial loss or damage that are made by a client or other third party individuals. These claims could come as a result of perceived negligent services or negligent advice your business has provided.
This is to say, if you are alleged to have provided inadequate advice, services or designs to a client, professional indemnity insurance provides cover for the legal costs and expenses in defending the claim, as well as compensation payable to your client to rectify the mistake.
Regardless of how many years experience your firm may have, there is always the possibility you (or one of your team) could make a mistake. But what does this insurance protect against specifically?
What does professional indemnity insurance cover?
Professional indemnity (PI) insurance covers against a wide range of scenarios. These include:
- Professional negligence
Your business is covered in the event of a perceived failure of your business to provide its professional services in line with the duty of care promised or owed to the client. This can range from a serious lapse of judgement when providing professional advice to simply making a mistake in a client document that ultimately costs your client either financially or reputationally.
- Loss of documents or data
Your business is covered in the event of an important physical or digital document going missing. Crucially, you can also be covered if confidential data is accidentally lost, deleted or shared with the wrong person.
- Unintentional breach of copyright and/or confidentiality
Your business is covered should a case of unintentional theft of intellectual property or breach of copyright be brought against your business. You could also be covered against breaches of confidentiality, including non-disclosure agreement breach disputes.
- Defamation and libel
Your business or an employee is covered if they are sued for libel or slander following unfounded comments or assertions (either written or spoken) being made against a third party.
- Loss of goods or money (your own or for which you are responsible)
Your business is covered if it is sued by a client or another third party for losing money or goods that were entrusted to your business. This is most common in businesses that are involved in the repair and maintenance of possessions, such as dry cleaners and cobblers, for example.
Is professional indemnity insurance mandatory?
In respect of industry bodies' regulatory requirements, many business sectors require PI insurance - accountancy, engineering and surveying to name a few. Professionals working on a contract basis - such as management consultants, business consultants and IT contractors - will almost certainly need PI insurance in order to be awarded a contract.
However, even if you are not legally obliged to have PI insurance, without it you could have to pay thousands of pounds in compensation and legal fees to defend a claim. This would be in addition to the opportunity cost of time spent defending the allegations.
No matter how large or small a business, without PI cover your financial position could be left vulnerable if a claim is brought against you. Although most professionals strive to provide the best service possible, people do make mistakes. Knowing that adequate insurance is in place will give you peace of mind that your organisation is covered.
Do I need professional indemnity insurance?
If you provide advice, designs or a service to your clients, you should give serious consideration to professional indemnity insurance.
While most firms enjoy good relationships with their clients, a mistake in a project can change working dynamics overnight. The chances are that if a client suffers a significant financial loss as a result of your negligence, they are likely to seek recompense. Professions that may need PI cover include consultants, IT professionals, teachers and private tutors, recruitment professionals, designers, fitness professionals and dance teachers.
What limit of professional indemnity do I need?
Choosing a professional indemnity insurance limit depends on your firm's circumstances. If you need PI insurance for a specific contract, it's likely the client will have specified a minimum amount. This is often the case for industry bodies too, so check before arranging cover.
Otherwise, consider a worst case scenario if you were to make a mistake in a piece of work for a client, and estimate the cost of putting it right. Remember to take into consideration any legal fees and losses that could be incurred by your client as a result of the error.
Confused by professional indemnity insurance?
Find out more about PI insurance or call us on 0800 640 6600. We are professional indemnity insurance experts and will be happy to talk you through the cover options available.
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