Professional indemnity insurance – probably a term you have always thought to be associated with lawyers, solicitors, accountants and other similar professions. However, if you are likely to be carrying out work for a client, as well as offering advice, you may want to consider taking out a good professional indemnity insurance policy, otherwise, you could face a hefty bill if any of your work or the advice you give, is wrong.
You work hard to keep your business afloat. Imagine if you almost lost it all due to a small mistake? Small mistakes, which you probably don’t even think about, can still cause another business significant financial loss. For example, let’s say you misquoted measurements, or you cut pipes to the wrong size which meant the job was unable to be completed. All these instances could result in a claim, and after covering your legal expenses, as well as the claimants, you could be left with a pretty disastrous hole in your pocket. Therefore, you need professional indemnity insurance, to protect you and your business.
We understand professional indemnity insurance is a difficult concept to master. Read our ultimate guide to professional indemnity insurance cover and you could have all your questions answered today.
Professional indemnity insurance, also referred to as PI insurance, is a specialist type of liability insurance which aims to protect businesses and/or individuals who provide advice and expertise to other third parties.
If a client or customer is dissatisfied by any advice they have been given, or they feel work which has been carried out has been inadequate or faulty, they can pursue you for compensation claims to cover their financial losses.
Even if you haven’t done anything wrong, you will still be expected to cover the costs to defend yourself in court, and this can be very expensive. Professional indemnity insurance is therefore designed to cover the cost of your legal defence, as well as any compensation you may need to pay out to the client, should you be held liable.
Professional indemnity insurance is not a legal requirement for many professions within the UK, however, many professions will still need to have specialist cover as part of their industry body’s regulatory requirements.
Examples of professions in which professional indemnity is a legal requirement include financial advisors, accountants, solicitors and chartered surveyors.
Even if you are not legally obliged to have professional indemnity insurance, it could still prove to be extremely useful in the event of a customer making a claim against you.
Everybody likes to think they are experienced and skilled in the work or advice they provide to clients; however, mistakes can still happen to highly experienced and highly professional people, and the costs that could result would be enough to potentially cripple a business if there was no professional indemnity insurance to fall back on.
If any of the following apply to you, you are likely to need professional indemnity insurance:
Professions which should consider professional indemnity insurance include the following:
Not only is it a legal requirement, working with numbers is particularly risky. Miscalculations and mistakes, even small ones, can cause significant financial loss to the client, resulting in claims being made. Professional indemnity insurance is therefore a must if you are an accountant.
Architectural errors often emerge when the work has been completed, meaning clients may lose money to put the mistakes right. It is therefore appropriate for architects to protect themselves through a specialist professional indemnity insurance policy.
If the wrong advice is given to clients regarding fitness tips, the client could potentially injure themselves, which may be down to your negligence or inadequate advice. It is vital then that fitness professionals take out professional indemnity insurance to protect themselves in such situations.
Advice will play a key role in this profession, alongside training and teaching. Professional indemnity insurance should be considered here in case clients feel the advice or training they have been given has been inadequate.
This list is by no means exhaustive. The bottom line is, professional indemnity is worth thinking about if you are self-employed or own a company which offers advice, knowledge or skills as part of its services.
Professional indemnity insurance will protect you against several claims that could be made against your business. The types of claims that could be made against you will be dependent on your business sector. Let’s have a look at a few examples:
A claim can be made against you if you lose money or goods belonging to a client, if you were legally liable for the safe storage and return of the goods. An example might be a seamstress, who may be entrusted with an expensive suit that the client needs to be altered.
If the seamstress loses that suit, they could be held liable for the financial loss the customer will experience. Compensation will therefore be awarded to the client to replace the cost of the suit – and with professional indemnity insurance, you would not have to front that cost alone.
Companies or individuals can sue you if you lose confidential information or data. This would relate to IT contractors who perhaps carry out work on behalf of other businesses.
When data is lost, companies risk their trade secrets falling into their competitors’ hands, and for this reason they would have legal grounds to make a claim. Professional indemnity would protect you in this situation.
If you carry out work for a client, which is later classed as faulty or inadequate, a client may be able to make a claim based on professional negligence. Errors happen to the best of us and even to the most highly skilled people. Professional indemnity insurance will cover you should such an incident happen.
Imagine for instance, an architect designed an extension, which on completion had to be knocked down and re-built because the design was flawed. This would be classed as professional negligence, and the architect could be held liable to pay the cost of rebuilding the extension plus any legal fees.
Claims can also be made against you if a client or customer feels you have written or said something to ruin their reputation. If you have written or expressed something defamatory about a customer or another business that is false, they may have the grounds to take legal action against you.
Libel and slander insurance will cover you in such instances, as even if the accusations made against you are false, you may still have to front the legal costs to defend yourself. This may be included on a standard professional indemnity insurance policy, or you may have to include it as an optional extra.
If you break copyright law, you could also face an expensive claim being made against you. This could be done through accidental use of another’s intellectual property.
For example, a media company designs a website for a client, and then that client is sued by another company for featuring its photos on the website. The client could sue the media company in this instance on grounds of breach of copyright.
Whatever sector your business is in, there may be times when claims could be made against you, and even over the smallest of mistakes. It is better to get yourself protected financially, should you land yourself in a tricky situation in the future.
The level of cover you require will vary depending on the nature of your business. The more risk associated with the work you carry out, the more likely you are to need a higher amount of cover.
To help you decide on how much professional indemnity insurance you will need you should consider the following points:
It is always a good idea to seek advice from another professional body regarding the amount of cover you will need, preferably a legal company.
As a rough guide, the minimum amount of cover may be around £2m. This might perhaps be useful for a smaller company or sole trader, who has less clients and smaller contracts. The higher-end limit could reach around £10m, and this could perhaps be more useful to larger companies that deal with large contracts.
There are usually two types of policy you could consider when looking into professional indemnity cover.
If you choose to take out an ‘any one claim’ policy, it means your policy will pay up to your indemnity limit on every occasion a claim is made during the policy period. This provides a good level of cover.
For example, if you have an indemnity limit of £3,000,000, every claim you make can be up to that value, as your insurance provider will look at each claim separately.
This type of cover is different to any one cover, as each insurance claim will not be considered separately. This means your indemnity limit on your policy is the limit for all claims accumulated throughout the policy period.
For example, if your indemnity limit is £4,000,000, and somebody makes a claim against you totalling £2,000,000, you will only be able to make a claim of up to £2,000,000 in the future.
Any one claim policies tend to be more expensive, and that is simply because they consider each claim as separate and so the amount that could be paid out to you is higher than on an aggregate cover policy.
Despite this, any one claim policies are favoured the most by business owners as they will provide a better level of protection, should something go wrong. If you are unsure, speak to your insurance provider and they should be able to answer any questions you may have about each policy.
It is a good idea to check with your regulatory body whether professional indemnity is a legal requirement – if it is, you will need to get professional indemnity insurance to comply with the law.
Your business may still be held liable for negligent work it has carried out, even if it is no longer trading. This is equally the same if you are self-employed and decided to retire.
Run off cover will therefore cover you for this period. You should ask your insurance provider if this is included as a standard part of your policy, or whether you will need to add it as an optional extra.
You should now have all the necessary information you need to help you choose the right policy and level of cover for professional indemnity insurance. Use Utility Saving Expert’s online comparison tool to get a no obligation quote within minutes.
Combining professional indemnity insurance with other products, such as public liability insurance or employer’s liability insurance, may also reduce your premium, as well as make your policies easier to manage.