What is Professional Indemnity?
Mistakes happen, and that’s what ‘Professional Indemnity Insurance’ protects you against. It covers you or your business when you make an error or mistake in your work. It is designed for ‘professionals’, so those that offer specialist advice, designs, consultancy or any other expertise. It covers the cost of compensation to clients if your professional advice has causes them to lose money.
Professional Indemnity Insurance is also known as PI, professional liability, or indemnity insurance.
So, is Professional Indemnity Insurance worth it?
Remember, professional indemnity insurance not only provides the compensation required to rectify any mistakes in your work, but it also provides cover for defence costs in situations where the claim made by a client is un-justified.
You may have complete confidence in the quality of your work and many years of experience, but any small business or contractor is vulnerable to a claim of negligence when your work fails to meet a client’s expectations and causes financial loss.
What would you do in a situation where a client sues you as a result of your work?
First instincts would usually be contact your solicitor, that’s if you have one. Unfortunately solicitors aren’t cheap, the costs can rack up quickly and be crippling to your business. But the financial costs are just the start, you also need to take into account lost business time and resource handling a disgruntled client which could have otherwise been used for more productive means.
A Professional Indemnity Insurance policy will take that worry away. Providing you opt for a reputable insurer they should take more of the burden off your shoulders of dealing with the client dispute. They will also appoint either in house claims solicitors to deal with the matter (preferable!) or external solicitors on your behalf.
Do you need Professional Indemnity Insurance?
Well, first of all, in certain industries Professional Indemnity Insurance or PI, is made compulsory by your regulatory body. But, whether compulsory in your industry or not . . . professional indemnity is well worth considering!
A key consideration is whether you are regarded as a ‘professional’ and therefore your specialist advice or services relied upon by clients. Any business or individual that offers ‘professional’ advice, designs or services can be held liable for professional negligence.
If your services could cause any financial loss to a client, even if the chances are remote, a professional indemnity policy would protect you should a client wish to sue you or your business as a result.
It’s not just about your professional services and negligence!
Most professional indemnity insurance policies will also provide cover for the following extensions:
- Defamation (or libel and slander)
- Infringement of copyright
- Infringement of intellectual property
- Negligent misstatement or misrepresentation
- Fidelity (dishonesty of employees)
- Breach of confidence
- Loss of documents
Is Professional Indemnity Insurance a legal requirement in your industry?
This is not an exhaustive list, but all of the following professions are required to hold Professional Indemnity Insurance by their corresponding industry regulators.
- Financial advisers
Any company offering insurance related products or advice
But any professional offering specialist advice or design will often be expected to hold Professional Indemnity Insurance by clients and this is often hard wired into the contracts you sign.