Professional Indemnity Insurance

By Unknown 24/10/2017

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Professional Indemnity Insurance - Do You Need It?

What is professional indemnity insurance?

If you're looking for cover, you may come across technical terms like: 'indemnity', 'duty of care', 'claims made' and 'negligence'. But what if these terms mean absolutely nothing to you?

Let's start with the basics. What exactly is professional indemnity insurance?

It's all about negligence and protection. In straightforward terms, in business, your carelessness can be thought of as a misstep you've made. Oversights for the most part have some sort of aftermath (for instance, a despondent customer) and that is the place the insurance for-you bit comes in.

As a professional if your client believes you've done something wrong, like given them bad advice, not delivered what you said you would or been careless with their confidential information, they're at liberty to sue you for any losses they sustain because of the alleged failure.

If they do decide to sue, it's then that a professional indemnity insurance policy kicks in. The legal costs of defending you and any damages awarded to your client are paid - up to the level of cover provided by your policy, of course. You get the problem resolved and, with any luck, get to keep your client too.

An important point to make is professional indemnity insurance is for genuine mistakes. Insurers tend to draw the line at paying claims caused by recklessness or promising something you can't deliver. You still have to act responsibly. Even if you have your own terms and conditions, it's advised you still have professional indemnity insurance. These days, customers are inclined to sue first and ask questions later - you don't actually need to do anything wrong to find yourself at the sharp end of some enthusiastic finger-pointing.

And just some enthusiastic finger-pointing is enough by the way. You'll need to defend yourself if it happens and that's both expensive and time-consuming for you.

So, who needs professional indemnity insurance?

Who doesn't is probably the easiest answer. Not too long ago, professional indemnity insurance was taken up only by those who were required to have it by their professional bodies (accountants, solicitors and architects for example).

Things are a bit different nowadays and it's not just those who have to have professional indemnity that recognise its advantages. There's a very good reason for that. When problems arise, the knock-on effect of an increasingly litigious society means that disgruntled clients will often default to a sue-first-ask-questions-later approach to mediation.

And we're all familiar with the odious maxim: 'where there's blame there's a claim'. As a conscientious professional, it's important to protect yourself from all that nonsense. So, with that in mind, what's the answer? Who does need professional indemnity insurance?

If you consider yourself to be a professional, a specialist, an expert or authority in your field then the answer to this question is, you. A general rule of thumb is: if you offer advice, know-how, consultancy, design or other specialist services to your clients then you need professional indemnity insurance.

A Manual for Picking Proficient Reimbursement Protection and Understanding the Strategy Expressions

Professional Indemnity Insurance (PI) can be a complex area. Policy wordings can vary quite fundamentally from Insurer to Insurer. Different professions have different needs and as a result specialist wordings exist for some industries such as IT, marketing, media, construction, surveying, architects, etc.

Examples of the professional indemnity insurance terms that you are likely to encounter when considering this cover for your business include:

Claims Made

Professional Indemnity Insurance policies are written on a claims made basis. This means that it is the insurance policy that is in place on the date a claim is made against you, rather than at the time you carried out the work, that would respond to a claim

Retroactive Date

As mentioned above as your professional indemnity insurance policy is written on a claims made basis, it is your existing insurance company who is liable for claims made today for work carried out in the past. The retroactive date noted on your policy fixes the date from which they are potentially liable. A claim made against you for work carried out prior to the retroactive date will not be covered.

Your PI policy will show a retroactive date of either:

• Inception - namely the date from which you first placed your insurance with them 
• A specific date eg 01/01/2000 - this is usually the date that you took out your first professional indemnity insurance policy
• None - this usually applies if your business has been insured uninterrupted for many years.

Negligence or Civil Liability?

Some policies will only indemnify you in respect of a claim brought against you for a negligent act. Others are written on a much wider civil liability basis, which would cover you in respect of claims arising from

• Breach of professional duty;
• Dishonesty of employees;
• Libel or slander;
• Unintentional breach of confidentiality;
• Unintentional infringement of intellectual property rights. (Some insurers restrict this to unintentional infringement of copyright only)
• Loss of or damage to documents.

The Limit of Indemnity

The limit of indemnity is the maximum that an insurance company will pay out. A classic example of when professional indemnity insurance terms can make it difficult to compare quotations, you will need to know whether the limit of indemnity applies "in the aggregate" or to "any one claim".

"in the aggregate" this means that the limit of indemnity is the maximum your insurance company will pay during the entire period of insurance, regardless of how many claims you make. For example if your limit of indemnity is £1,000,000 in the aggregate and during the period of insurance you are unfortunate enough to have three claims successfully made against your business each for £500,000, you will find yourself having to fund a £500,000 claim yourself

"any one claim" the limit of indemnity is the maximum your insurance company will pay for any one claim. In the example above as each claim is less than the £1,000,000 limit of indemnity they will pay each claim in the full (less the policy excess see below)

The decision of breaking point of reimbursement for your business' expert repayment protection is muddied further by the issue of barrier costs, see beneath.

Including Defence Costs or Defence Costs in Addition

How your insurance company treats the issue of defence costs should be an important factor when assessing your limit of indemnity. Some insurance companies state that their limit of indemnity is £x, defence costs in addition. This means that the limit of indemnity applies to the awards element of a claim against you and that legal costs incurred will be paid by your insurance company in addition to the limit. Other insurers will include defence costs within the total limit of indemnity meaning that a low limit of indemnity could get quite quickly eaten up by legal costs

The Excess

The treatment of the excess can vary from policy to policy too. Some Insurers apply it to the whole claim including the defence costs. Others only apply it to awards meaning that you do not need to fund the initial defence costs yourself.

Professional Indemnity Insurance can be a complicated form of Business Insurance. I hope this article has helped you to understand some of the terms and jargon that you are likely to encounter and will help you to interpret the differences in cover when comparing quotations.

If you have any questions at all regarding Professional Indemnity Insurance please do not hesitate to contact me or a member of the team at Cass-Stephens Insurances.